10/16/2012
By Charles Payne

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Fanciful Facades?

This is a tough one because you have two dynamics pressing against each other like tectonic plates.  The current macro environment is difficult to say the least. The company has missed the Street in each of the last three earnings periods, and next year's earnings consensus is all the way down to $5.97 from $6.28 a week ago and from $10.14 three months earlier.

We get it...things are tough in the coal arena, but more so for thermal coal than metallurgical coal.  This company has one thermal mine.  The rest are iron-ore and metallurgical mines in the United States, Canada, and Brazil.  There will be tons of opportunity in Asia and South America, and the United States should get better even at a measured pace.

The stock is changing hands at a 6 PE and just 80% of sales and book value, plus only one times enterprise value to revenues.  In other words, the stock is cheap!

I would like to see more insiders buying, but the chart is in a reverse head and shoulders formation and a close above $41.00 clears the 200-day moving average.  From there, I see little technical resistance until north of $50.00.Over the last month, there has been an avalanche of brokerage downgrades.  Yet, the stock remains firm.  Today, it's on track to trade 50% more volume than its average volume.  There are lingering rumors out there of a takeover, and I think there is validity to it. Not sure if something like that happens soon, or down the road. 

I do know this; the stock is cheap despite its tough business backdrop these days.

Charles Payne
Wall Street Strategies