The Bull Bets on King Coal

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

You’ve got some volatile stocks in your portfolio — but ones which still remain technically sound, and are trading above their 50-day moving averages. The one exception is in Uranium Energy Corporation (UEC). With the stock in the doldrums, and below its 50-day moving average, I am recommending that you SELL this relative underperformer at a loss.

This week’s Global Bull Market Alert recommendation, Alliance Resource Partners LP (ARLP), taps into the global bull market in “king coal.” 

Here’s why I think this Oklahoma-based coal manufacturer is set to buck the recent weakness in global markets, and make a run for my short-term target price of $75.

First, global demand for coal is exploding. Even as China continues to grow at 10%-plus per year, the rest of the global economy also is recovering. This has led a recovery in demand and to a bull market in all stocks related to coal.

Second, recent floods in Australia have caused catastrophic damage to infrastructure in the state of Queensland. The worst flooding in decades has affected an area the size of Germany and France, and has cut major rail and road links to coal ports. Production in more than 75% of the region’s coal mines — the primary source of coal in Asia — has ground to a halt. This collapse in production is putting serious pressure on global supplies.

Exploding demand, combined with shrinking supply, can mean only one thing: higher prices for coal and coal companies like ARLP.

Third, with the broader market selling off, it’s important to find stocks that are technically sound. After selling off sharply last week, ARLP actually bounced off of its 50-day moving average on Friday. The stock also had a potentially bullish “inside day,” candle-stick pattern on Friday. This often means a possible change in trend and a move toward the upside.

So buy Alliance Resource Partners (ARLP) today, and place your stop at a tight $58.50. If you want to play the options, I recommend the June $70 calls ARLP110618C00070000). You should be aware that the bid-ask spread on these ARLP options can be quite wide. So it’ll be slightly harder to make a profit in these options, even if the stock moves sharply.

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Portfolio Update

China MediaExpress Holdings (CCME) bucked the trend and rose slightly this past week. CCME is certainly operating in the right market. With total ad spending growth of 51% projected for the next two years, China will overtake Germany as the world’s third-largest ad market in 2011. Northland Securities also has a $32 target price on the stock, up 63% from current levels. CCME is a BUY.

Cognizant Technology Group (CTSH) dropped 2.61% this past week. Cognizant will announce results for the fourth quarter of 2010 on Monday, February 7, 2011, before the market opens. Fundamentals intact, and technically still sound, CTSH is a BUY.

Bank of Ireland (IRE) fell back 2.03% this past week. With all the bearishness about Ireland, here is a rare bullish article on the country. IRE remains a speculative BUY.

Ivanhoe Mines (IVN) ended the week slightly lower. You should be aware that the company’s current rights offering will expire in eight days on January 26, 2011. You should either exercise these rights or sell them before then. IVN is a cautious BUY.

Melco Crown Entertainment Limited (MPEL) dropped back 3.77% this past week. CLSA Ltd. this week upgraded estimates for annual gambling revenue, which now is expected to grow 30%, up from the previous estimate of 20%. With the big picture still intact, Asia’s Las Vegas remains a BUY.

North American Palladium Ltd. (PAL) dropped back sharply this week. Having taken 80% and 140% profits in your options in the last two weeks, it was time for a breather. Technically above its 50-day moving average, PAL remains a BUY.

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Sina Corporation (SINA) plummeted 10.67% this past week, making your decision to take 126% profits on your March $72.50 calls a good one. “China’s Twitter” will bounce sharply and remains a BUY.

Spreadtrum Communications, Inc. (SPRD) dropped 4.95% this past week. With HSBC raising its earnings estimates on SPRD and the target price on the stock to $25.00, this bet on Chinese technology remains a BUY.

Silvercorp Metals Inc. (SVM) dropped 3.09% even as the company was upgraded by BMO capital markets to an “outperform.” SVM will release its unaudited third-quarter results on Tuesday, February 8, 2011, after the close of the market. With the stock remaining firmly below its 50-day moving average, SVM remains a HOLD.

Transocean Inc. (RIG) was flat this past week, even as you exited your remaining options on Tuesday with a gain of 133%. With a P/E ratio at 10.3 vs. an industry average at 27.15, RIG remains a BUY.

P.S. I invite you to join me at 2 p.m. Tuesday, Jan. 25, for a one-hour, subscriber-only teleconference, “Three Sectors to Watch in 2011 & the #1 Investment Ideas to Capitalize on Them.” I will give you my personal view on the markets, politics, the economy, the state of emerging markets for the last six weeks and my outlook for 2011. I’ll detail seven solid trends to watch, three sectors to focus upon and one insane investment recommendation that will let you profit all year long. To participate, all you need to do is to answer your phone when we call you between 1:55 p.m. and 2:05 p.m. EDT next Tuesday. If you want to be sure that we have your contact information to ensure you get a call, please click here.

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