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The World's Cheapest Energy Stock Is Up 50%By Graham SummersWednesday, May 9, 2007 What is likely the cheapest energy stock in the world may have finally bottomed out.
James River Coal (JRCC), the one energy stock that hasn't made money in the last four years, the one coal company that managed to sink while the price of Appalachian coal doubled from 2001-2005, the one company that has traded for 1/80th of its reserves' value for the last six months, finally hit bottom in January 2007.
Watching JRCC's share price over the last year and a half has been like watching a car tumble over a cliff. You grimace with each new drop, but you can't turn away.
In what has been a truly stupendous series of failures, JRCC has managed to post losses and miss estimates seven out of its last eight quarters. To be fair, the price of Central Appalachian coal – the type JRCC owns – has fallen 33% during that time. However, plenty of other coal companies remained profitable during this drop.
JRCC's relentless fall even wore out legendary hedge fund manager Philip Falcone. Falcone is one of the best distressed-securities investors in the world. Since its inception in 2001, his Harbert Distressed/Event Fund has beaten the market several times over.
Falcone bought JRCC around $45… and started liquidating in the mid-$30s. Everyone who didn't follow his lead lost a fortune.
However, starting in January 2007, JRCC shares caught a bid. Since then, they have risen 50%. And the company's business is starting to improve as well.
Yesterday, JRCC released its first-quarter results. Not surprisingly, it posted a loss. But the company did manage to beat Wall Street's expectations. According to Thomson Financial, the mean analyst estimate was a loss of $0.64 per share. JRCC trounced this, losing only $0.46 per share. JRCC shares rose as much as 10% on the news.
Here's the thing about James River, though: The company owns 273 million tons of coal. With the company's market cap at $161 million, its reserves are trading at roughly $1.68 per ton: a 96% discount from the current market price for Central Appalachian coal.
Put another way, JRCC is trading at 1/67th the market value of its reserves. For comparison, fellow coal producer Massey Energy is trading for 1/40th of its reserves.
Finally in an uptrend, beating analyst estimates, and with a huge pile of coal assets, it's time to reconsider this dog as a prospective investment.
Currently, JRCC shares are hanging around $10 per share, its most recent upward resistance level. If JRCC shares can break above $12, I'd seriously consider buying. Until then, keep this company on your watch list.
Good trading,
Graham
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