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Patriot Coal Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of coal stocks have climbed higher today, led by Patriot Coal (NYSE: PCX  ) , which is up 10% as of this writing. Alpha Natural Resources (NYSE: ANR  ) and Peabody Energy (NYSE: BTU  ) are both up about 5% as well.

So what: The big news is… no news at all. There are rumors floating around that Warren Buffett may be looking into buying coal stocks, in part because they're bouncing around near 52-week lows. There's no solid evidence behind the rumor but investors sure got excited about a few websites reporting about it today.

Now what: There are all kinds of reasons Buffett wouldn't be interested in coal, first and foremost because he has exposure to coal with Burlington Northern. There are also low natural gas prices to worry about, which aren't going away any time soon. Finally, Buffett knows that the energy industry is trending away from coal, so why would he be buying a money losing company in the industry?

Interested in more info on Patriot Coal? Add it to your watchlist by clicking here.

Fool contributor Travis Hoium does not have a position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings or follow his CAPS picks at TMFFlushDraw.

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Read/Post Comments (2) | Recommend This Article (1)

Comments from our Foolish Readers

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  • Report this Comment On March 17, 2012, at 5:44 PM, Mikey925 wrote:

    You obviously are unaware that India dropped a coal import tax on their utility companies.

  • Report this Comment On March 19, 2012, at 10:37 AM, leelinch wrote:

    Future events that could make COAL stocks pop...

    1. Republican in office - no guarantee that, even if elected, they would reverse course already set in motion by Obama... but mere idea of republican in office would likely cause them to rally. And with Republican in office, unlikely noose would get any tighter for coal stocks politically.

    2. A rise in natural gas prices - there is a positive correlation between natural gas and coal prices. As one rises, so does the other. With nat gas at 10 year lows, eventually, prices will turn the other way.

    3. A closing of mines - already taking place. Less supply = higher prices.

    4. A reduction of natural gas production - will HAVE to happen. These people are not going to "mine" this stuff for a loss. The more they take from the ground, the lower prices go... at least until demand for the stuff picks up.

    5. On going research into the safety of fracking - at any moment the government could suspend this practice for further review. For anyone thinking there is no risk, google "arkansas fracking" and start reading. While coal may pollute the air to some degree, fracking is poisoning ground water and causing earthquakes. If you want my personal opinion, fracking is worse than burning coal. My fear though, is that the government is ultimately going to allow fracking because the idea of "energy independence" and "jobs" will trump safety concerns... or at least until we get some sort of catastrophic event. With fracking now taking place around major cities (DFW), we'll find out soon enough. If fracking banned, expect rapid and dramatic accent of coal stocks.

    6. China, and rest of world - Coal stocks currently priced as if China and rest of world have stopped growing and things will be unlikely to reverse coarse for many many years. I'm thinking China and others find a way to leave a light on.

    Currently, coal stocks priced as if Obama wins re-election, natural gas prices stay rock bottom indefinitely, entire US shifts to natural gas to run their facilities, fracking is deemed absolutely safe, and China, India, and Emerging markets also shift to natural gas. Domestic coal stocks currently reflect a "perfect storm" of dire and doom... and it's this exact thinking always presents some of the greatest opportunities.


    Lastly, regarding Buffett, I think buying a coal stock would be perfect fit for him. Buffett already owns BNSF, whose most profitable business sector has been COAL for years. Buffet already has large position in GE, which makes BNSF locomotives. BNSF gets the vast bulk of its coal business from the Powder River basin. Buffett has toured the Powder River basin and with most coal stocks (take your pick) near their 08-09 "end-of-the-world" lows (despite 2012 being best year in over a decade for coal exports), I say buying a coal company makes PERFECT sense for Mr Buffett. He believes in the US economy and he loves buying on the cheap. Buffett is building the perfect utopia.

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