The coal industry is one of the most under-the-radar ponds to fish in.
Investors write it off because "clean energy" will displace the industry. While this is likely true, we think it will take far longer than most expect.
In the meantime, this extreme mispositioning is our opportunity to profit.
You would have made a fortune if you bought these stocks at the depths of the COVID crash. Far more than if you purchased the hottest "work from home" stock.
These stocks had their best day in years last summer after a major Australian coal mine caught fire and halted production.
While we haven't seen the upside follow-through we anticipated, the setup looks ripe for the bulls to take control.
Let's dive into the charts.
Our Coal Index is testing a key level of interest:
Our Coal Index rallied from 5 to 40 from 2020 to 2022, making it the best industry group during the post-COVID bull market.
Since then, it has churned sideways in a well-deserved digestion of gains.
If you think this uptrend will resume, as we do, then buying at the current level is ideal. The risk is skewed in favor of the bulls.
But which stocks do we want to buy?
We want to own thermal coal, not coking coal stocks:
Thermal coal stocks are making a new cycle high and resolving a multi-year basing pattern relative to coking coal stocks.
We want to continue leaning into the relative strength, and here's why.
Coking coal stocks are printing fresh 52-week lows:
Coking coal stocks aren't just relative losers. They're losing in absolute terms, too.
The largest names in this industry are Warrior Met Coal $HCC, Alpha Metallurgical Resources $AMR, and SunCoke Energy $SXC.
While this group of stocks were some of the biggest winners in the prior cycle, things have changed. They have taken on a new role as a laggard.
New 52-week lows are not a characteristic of uptrends or leadership.
Now, let's look at the leader. 👇
Thermal coal stocks just made a new cycle high:
Thermal coal stocks are resolving a multi-year continuation pattern and look poised for more upside over the foreseeable future.
The largest names in this industry are Core Natural Resources $CNR, Alliance Resources $ARLP, and Peabody Energy $BTU.
We outlined our favorite setups in the industry last summer, and most are still actionable today. You can check them out here.
As our natural gas trades keep climbing, we want to rotate into fresh opportunities and deploy our capital in the strongest coal stocks.
