Why Coal Stocks Were Crushed Today


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: Coal stocks fell off a cliff today in response to yesterday's election. Alpha Natural Resources (NYS: ANR) and Arch Coal (NYS: ACI) fell as much as 14%, and Peabody Energy (NYS: BTU) fell 11%, while Alliance Resource Partners (NAS: ARLP) and Rhino Resource Partners (NYS: RNO) fell 10%.

So what: President Obama's win yesterday eliminates any hope that the president would reduce environmental regulations on coal, a hindrance the industry often points to. The industry spent millions of dollars opposing Obama, and it looks like the money has gone to waste as well.

But while investors are worried about Obama, they're overlooking the two factors that really led to the industry's decline. Natural gas, which has begun replacing thermal coal for electricity generation, has been steadily rising since May, and this will help spur demand for coal.

US Natural Gas Wellhead Price Chart
US Natural Gas Wellhead Price Chart

US Natural Gas Wellhead Price data by YCharts

Second, the industry has been shutting down high-cost mines that have led to oversupply, so the supply-demand imbalance isn't as bad as it once was. Macro forces are at least improving for coal, which is a good sign long-term no matter who is president.

Now what: I don't think the election really had anything to do with coal demand no matter the rhetoric, so I think this is a vast overreaction by investors. It will take time for coal to be replaced in America, and demand for thermal and metallurgical coal is still growing in emerging markets. Even under the Obama administration we've seen an improvement in earnings in recent quarters, and if natural gas continues to rise and the economy improves, I think the trend will continue.

I'm not bullish on coal, but I'm not as bearish as I once was, and I don't think the industry will die under Obama. What investors should look to do is diversify to growing energy sources like natural gas if they're looking for ways out of coal.

With the swelling of the global middle class, energy consumption will skyrocket over the next few decades, and long-term investors know that you want exposure to this space now. We've picked one incredible natural gas company that presents a rare "double-play" investment opportunity today. We're calling it The One Energy Stock You Must Own Before 2014, and you can uncover it today, totally free, in our premium research report. Click here to read more.

The article Why Coal Stocks Were Crushed Today originally appeared on Fool.com.

Fool contributor Travis Hoium has no positions in the stocks mentioned above. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Alliance Resource Partners. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.