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Alpha Natural Resources Cools; Is It Time to Buy?

NEW YORK (TheStreet) -- If you're a current Alpha Natural Resources (ANR) investor Wednesday's guidance update must have felt like having the power company cut off your service by mistake as guests arrive to your home. ANR ChartANR data by YCharts

TheStreet's Timothy Collins suggests ways to examine the energy space (You need a Real Money Pro account to read, but Collins' analysis alone makes it worthwhile.)

Alpha Natural Resources is a leading Central Appalachian coal producer that also has significant operations in Northern Appalachia. Alpha Natural Resources trades an average of 14.4 million shares per day with a marketcap of $1.7 billion.

Alpha Natural Resources has lost about 14% of its marketcap from Friday's close. The loss in market cap is a result in part from analyst Meredith Bandy at BMO Capital Markets in Denver lowering its rating on Alpha Natural Resources from a buy to a sell. Of the 19 analysts covering this company, most still rate it a buy. The average analyst target price for ANR is $20.72.

Monday's move lower follows the bearish trend in the 60-, 90-, and 200-day moving averages. Usually, the first break of the widely watched 200-day moving average fails and investors can expect a retest. (Read why I believe Amazon Isn't Worth Half its Current Price.)

Alpha Natural Resources's CEO Kevin S. Crutchfield blames the weather and natural gas.

Crutchfield stated during the Q1 conference call:

The demand for thermal coal has been diminished by the relative absence of winter weather in much of the United States and the related phenomenon of near-record-low gas prices, which has spurred coal-to-gas switching among utilities, including, for the first time in a significant way, utilities that burn Powder River Basin coal.

We could devote a lot of time to talking about issues in the domestic steam market, but the long and short of it is this: utility inventories have risen rapidly and now exceed 200 million tons, near record high levels, and coal-fired generation has recently fallen below 40% of U.S. electricity generation.

Institutional holders have aggressively walked away from Alpha Natural Resources. Over 32 million shares sold in the last six months resulting in a reduction of 22.5%. It's no surprise Alpha Natural Resources is trading at multiyear lows when the big money has transitioned out to the degree they have.

Other companies in the space are gapping down in price in sympathy Arch Coal (ACI) down over 4%, Consol Energy (CNX) down over 2%, and Peabody Energy (BTU) was lower in the morning session, but pushed higher as the day moved along.

Peabody Energy reached oversold status on my chart in June and now Alpha Natural Resources is oversold. I like Peabody Energy as well for a stock that is unloved by the market. ANR ChartANR data by YCharts

I don't believe natural gas has to move higher, but I do believe natural gas is oversold as well. As natural gas rises, so can coal move higher. Peabody Energy and Alpha Natural Resources are positioned to capture an increase in coal use. ANR Operating Earnings Yield ChartANR Operating Earnings Yield data by YCharts

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