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 Arch Coal Inc (OTC:ACIIQ) were down by double digits when the market opened for business on Monday morning. That's after Argus downgraded the stock from a buy all the way down to sell. If that wasn't bad enough the firm said it would no longer cover the stock as it sees nothing but more losses on the horizon.
So what: Analyst downgrades are nothing but market noise and are usually backward looking instead of forward looking. That appears to be the case with this particular downgrade as Argus is taking the stock from a buy to a sell. Given the 70% sell-off in the stock one could argue that they are a tad bit late with the downgrade.
That being said, it's no secret that 2015 is expected to be a bad year for both the coal industry and Arch Coal due to weak demand and an oversupply of coal. However, coal does still provide 40% of the country's electrical generation needs while coal's usage outside the U.S. continues to grow. So, there are some positive trends that could one day pull coal stocks out of their current doldrums.
Now what: Still, there's nothing on near-term the horizon that would yet suggest that coal demand is about to pick up. Because of that coal stocks will remain under pressure. However, by 2018 there is expected to be 150 gigawatts of new coal-fueled generation capacity online globally, which is expected to result in 440 million additional tons of coal demand. The only question is if coal producers like Arch Coal can still afloat long enough to be a part of any future uptick in coal demand.