3/15/12
I
wanted to get this out tonight because I want you in a stock tomorrow morning
in case we get a nice rally. The
stock I’m recommending this week is Peabody
Energy (BTU). Peabody is one
of the largest coal miners in the world, which mines, prepares, and sells
thermal coal to electric utilities and metallurgical coal to industrial
customers. This is a company that
has been around since the late 1800s and has a market cap of $8.63B. While I love the technical move it made
today (more on this later), I like this play because I think that all the
worries about China’s “hard landing” are vastly overblown and China is the
world’s largest consumer of coal energy.
China’s Prime Minister Wen Jiabao just simply won’t let the Chinese
economy come crashing down like the United States and Europe.
Peabody
Energy is extremely cheap, trading at just 7 times forward earnings and has a
price-to-earnings growth rate of a measly 0.83, making this one of the cheapest
stocks in the entire market. The
company is growing quarterly revenues by about 29% and earnings by 9%, with
operating margins of 20%. BTU pays
out a small, yet helpful 1.10% dividend and with a payout ratio of just 9%, has
plenty of room to raise the dividend.
Analysts currently have 22 buys, 3 holds and 1 underperform rating on
the stock, which is an increase from 21 buys just three months ago.
The
technicals of BTU are what really got me excited about this particular
stock. If you look at the chart,
you see this thing has just been obliterated since hitting a 52 week high back
at the end of last March. It’s
spent an entire 365, going straight down, until the last few months, where it
has flattened out. If you look
even closer to the performance over the last 8 days, you’ll see that the stock
has traded on almost twice the average daily volume as it put in new lows. What I want to talk about is today’s
move in the stock. What happened
today is called an outside reversal day.
What that means is that the stock opened in the middle of the previous
day’s body, made a new 52 week low, and then just blasted off, finishing on the
highs of the day for a 5.38% rise.
The move today alone engulfed six of the last seven days of price
action, which indicates capitulation (you get a last major selloff to new lows before
rallying back on unusually high volume).
Additionally,
if you look at a long-term weekly chart, you’ll see that BTU has fallen about
50% from the armpit line of the head-and-shoulders. The $30 level looks to be strong support as the last time it’s
came down to this level was when it rallied in 55% from October 3,
2011-November 3, 2011. Before
that, the last time BTU was at $30/share was in July 2009, where it began a
major bull move all the way up to $73.95.
Now,
you need to look at this as a low risk trade using the recent 52-week low as
your stop out. So using a very
tight stop, buy the stock tomorrow morning and stop yourself out at $29.78. Peabody Energy closed today at $31.71,
so you’re only risking about $2/share.
Full disclosure: I currently hold no positions in BTU but am initiating a
position tomorrow morning.
Jeff Lewison
No comments:
Post a Comment