Sectors come and go and this one has no long-term future. Coal saw a resurgence as candidate Trump rose in the polls and then rocketed higher once he was elected. That excitement has faded.
NEW BULLISH Plays
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WLB - Westmoreland Coal - Company Profile
Westmoreland Coal Company, through its subsidiaries, operates as an energy company. The company operates through Coal - U.S., Coal - Canada, Coal - WMLP, and Power segments. It produces and sells sub-bituminous coal and lignite to power plants. The company owns and operates coal mines in Montana, North Dakota, Ohio, and Texas, the United States; and Alberta and Saskatchewan, Canada. It has total proven or probable coal reserves of approximately 888,202 thousands of tons. The company is also involved in the production of electricity. It operates two coal-fired power generating units with a total capacity of approximately 230 megawatts in Weldon, North Carolina. Westmoreland Coal Company was founded in 1854. Company description from FinViz.com.
Westmoreland shares spiked from $8 to $20 post election and the excitement has left the stock in the recent months. Westmoreland was trading below $4 when Trump began his rise in the polls talking about putting coal miners back to work. Now that the excitement is fading I would not be surprised to see shares return to $4.
The coal sector is on life support. Cheap natural gas burns cleaner, is easier to transport and there is no storage required. Coal is dirty, requires long trains traveling halfway across the country and large rail yards and storage yards to hold the inventory. As long as gas remains under $5, currently $3.22, that will be the fuel of choice.
Westmoreland has a little more going for it because it owns two power plants but it is still losing money on coal.
They recently reported a loss of 41 cents on revenue of $392.7 million. For the full year they lost -$1.47 per share. They are being forced to restate earnings because of past problems.
They guided for a weak 2017 and said two supply contracts had expired. Warmer weather was also weakening demand.
Earnings June 27th.
Shares are $10.25 with support at $8.50 but that support was based on expectations for Trump to win the election. The expectations that coal use would somehow miraculously rebound have now evaporated.
Sell short WLB shares, currently $10.25, initial stop loss $11.50
I am not recommending the put options because of wide spreads but the June $10 put is 90 cents, $9 put is 50 cents.