In recent weeks, coal stocks have resumed selling off, a process that began in early 2011 only to pause for a bit of consolidation over the past few months. Arch Coal (ACI), Patriot Coal (PCX), and James River Coal Company (JRCC) have now broken below their October 2011 lows. Alpha Natural Resources (ANR) and Peabody Energy (BTU) are fast approaching their October lows. Over the past few weeks, I have read numerous commentaries outlining the challenges facing the coal industry. In the end, the discussion frequently shifts towards the pros and cons of buying coal stocks. However, it should be noted that “buy-the-dip” is not an expression that just pertains to stocks, but it is an idea that can be applied to the fixed income market as well.
As coal stocks have been selling off over the past several weeks, the bonds of many of these companies have followed suit. If you’ve done your homework on the coal companies, are looking beyond the current challenges, and are favoring putting some money to work in that industry, spend some time thinking through exactly what types of returns you are hoping to achieve from an equity position in coal. Then, spend some time comparing the prospects of achieving your goals based on the current stock prices, as compared to the yields you can find in coal companies by looking further up the capital structure.
I am an investor/trader with nearly nine years experience in the financial world. I have experience investing in and trading equities, options, and a variety of fixed income and alternative investment products. I also write for SeekingAlpha.com.
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