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 Alpha Natural Resources (OTC:ANRZQ) jumped as high as 10% above the opening bell this morning when the company posted a less-than-expected loss of $0.55 per share, only to give it all back when everyone realized it still posted a loss of $0.55 per share.
So What: No matter how much coal companies, like Alpha, cut costs, it just seems that none of them can catch a break on the price for coal. Even after cutting the cost for its Eastern thermal coal by close to 20% compared to this quarter last year, it was still only able to generate a $0.02 gross margin on every ton of coal sold. This is pretty much par for the course for Alpha across all of its business segments, as the margin on its products is close to nil because the price of natural gas has remained so low for the past several years. As long as gas stays as cheap as it does, Alpha and all its coal compatriots will struggle to eke out any profits, if any at all.
Now What: Somewhere out there, a value investor is talking himself into buying shares of Alpha because it currently trades at a price to tangible book value of nine cents on the dollar. As juicy as that may sound, just remember this: This was the 13th straight quarter where Alpha has posted a loss, and based on the contract prices it received for its coal volumes for 2015 it looks like these losses will continue for at least all of 2015. Coal may not die in the U.S. -- we use too much of it for power generation for it to completely disappear anytime soon -- but chances are a company or two in the space won't see the days of better prices.