Coal Stocks Get Beaten, then Kicked, and then Beaten Again (KOL) (ANR) (BTU) (ACI)

July 12, 2012 11:48 AM EDT
Market Vectors Coal ETF (NYSE: KOL) is lower by a whopping 10.41 percent in the past 5 trading sessions. The industry has had a difficult first half of the year due to a decline in demand for coal, driven in part by increased interest in natural gas. Problems in the industry resulted in punishing declines in coal stocks all year. This resulted in a bankruptcy filing by cash-strapped Patriot Coal (OTC: PCXCQ) earlier this week. As a result, investors are loathe to touch stocks in this sector.

David Gagliano, an analyst at Barclays, said yesterday that the near-term pain felt by other stocks in the sector, including Alpha Natural Resources (NYSE: ANR), Peabody (NYSE: BTU) and Arch Coal (NYSE: ACI) is mostly an overreaction, but Gagliano thinks investors will continue to avoid leveraged stocks in this sector.

The bottom line is that there might be a buying opportunity in coal stocks at these levels, but underestimating the risks at this point could prove fatal.

Market Vectors Coal ETF (NYSE: KOL) is trading lower by 2.8 percent intraday on Thursday.

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