Coal Gets Hotter
Coal companies have taken their lumps since President Barack Obama took office, with investors fearful the Administration's proposed "cap and trade" emissions plan could force one of the industry's biggest customers--owners of coal-fed power plants--to raise prices by as much as 50%, hurting demand. But some analysts are becoming more bullish, in part because they expect greater demand from China. Coal producers themselves think valuations are attractive: Mechel OAO (MTL), a Russian mining and metals company, agreed in late April to pay $436 million for West Virginia coal producer Bluestone Industries.
Stronger-than-expected earnings from James River Coal (JRCC) and Consol Energy also provided evidence that supply and demand are getting back into balance. Goldman Sachs (GS) analyst Brian Singer upgraded the sector to "attractive" from "neutral," figuring prices will benefit from a second-half rebound in steel production, as well as stronger demand from China. He also upgraded Massey Energy (MEE) to a buy.
Treasuries: Watch Them Rise
Since Mar. 18, when the Federal Reserve announced it would buy up to $300 billion in U.S. debt, investors had assumed that a 3% rate on the 10-year Treasury bond was the central bank's "line in the sand." If yields went above that, the thinking went, the Fed would try to talk prices up, and thus yields down, or would buy bonds to get the same effect. But on Apr. 29, as the Federal Open Market Committee met, the yield topped 3%--and the Fed did nothing. The 10-year bond closed at 3.16%.
The Fed wants rates low to help the economy. But the U.S. has huge debts to fund, and investors have been favoring riskier assets over lower-yielding Treasuries. The Fed has little choice but to let rates rise. Over three to six months, expect the 10-year bond's yield to move in a range from 2.8% to 3.5% before it goes higher, says Peter Greig, co-manager of fixed income for AFBA Mutual Funds. He prefers corporate bonds, but if he had to own Treasuries, he'd buy one- to three-year bonds.
Insiders Are Selling? So What?
Insiders at Microsoft (MSFT), Gap (GPS), and Google (GOOG) dumped thousands of company shares in late April. Should investors follow their lead? Trading based on what insiders do is a poor strategy in the best of times, says James Stack, president of InvesTech Research, and even less advisable during highly volatile periods. Insiders were buying through the last half of the 1973-74 bear market and selling in 1982, just as the Dow Jones industrial average broke 1000 on its way to 2700. Insiders tend to place trades that are driven by the size of a movement in a stock's price, says Stack. If shares fall 30%, they're likely to buy; if they rise 30% or more, they are likely to sell. Since the trades are not usually based on a change in the company's fundamentals, investors shouldn't read much into the transactions. Says Stack: "Historically speaking, these guys make very poor investors."