Merger’s ahead: Alpha’s buying is just the beginning
Today's Financial News - Posted May 12, 2009
It may not be the politically correct industry to invest in, but the coal industry is producing winners. Get ready for a strong wave of consolidation as companies prepare for the future.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The coal industry is making news once again. More importantly, it is making investors money once again. Although my top industry pick, James River Coal (NASDAQ:JRCC), is not in the headlines, its share price is acting like it is.
Even as the Obama administration does its best to badmouth the coal industry, it is still a highly profitable and growing sector of the American economy. Today’s word that Alpha Natural Resources (NYSE:ANR) is taking over Foundation Coal (NYSE:FCL) and paying a 41% premium to do it proves the industry’s potential.
When Alpha finalizes the $1.5 billion, all-stock deal, it will become the nation’s third-largest U.S. coal producer, pulling as much as 100 million tons of coal out of the ground each year through a total of 59 mines and 14 preparation plants.
Get ready for more
There is little doubt, with coal and stock prices close to dirt-cheap territory, today’s news is just the start of a major consolidation period for the coal-producing industry. Competitors want to be adequately positioned to take advantage of rising commodity prices once the global economy expands.
As an investor, how do you take advantage of this opportunity? It’s simple. Now is the time to be buying.
Like I said, James River, the company I have been touting for weeks, is surging on the news. Its shares were up by as much as 12.8 on the day. Arch Coal (NYSE:ACI) was up by as much as 8%. National Coal Corp (NASDAQ:NCOC), another potential takeover target, was up by slightly over 10%. And Walter Energy (NASDAQ:WLT) was up by an equal amount.
The figures prove the market’s belief more deals are on the way. If that is the case, even today’s inflated prices are worth taking a look at (considering the average takeover premium is in the range of 40% to 50%).
My take is wait a couple of days for the market’s next swing downwards and start buying. Look for financially constrained small- to mid-caps with strong reserves. They will be the next targets.
Coal may not be the “hip” or politically correct investment right now, but that is what makes it so darn attractive. Invest when nobody else will.
Next Article: TFN Grapevine: Drop despite 50% loss reduction? Could this biotherapeutics stock double?
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