Peabody Energy (
is one of the largest coal mining companies in the world and it
just so happens that the stock appeared on my bearish scan last
night. After reviewing the
, the bearish outlook stands a strong chance of being accurate.
The stock has been in a downtrend for the past five months and
there is a well defined trend channel that has dictated the
boundaries of the downtrend.
The slow stochastic readings just made a bearish crossover and
it comes at a time when the stock is the most overbought it has
been in over a year. I have marked the last three times the stock
reached overbought status based on the stochastic readings. Each
of these three times marked on the chart represented a peak
before the stock fell 14% or more.
Peabody is expected to announce earnings in the next few
weeks, but it is unclear what the exact date will be. The reason
I say this is that I checked four different sources and two have
the earnings date as April 17 and the other two have the date as
April 21. Regardless of the date of the earnings report, the
consensus estimate is that the company will break even this
quarter. The odd thing about Peabody Energy is that they have
beaten their estimated earnings in each of the last four
quarters, but the stock hasn't been able to get out of the
From a fundamental perspective, there is a good reason that
Peabody's stock has continued to slide. The average EPS growth
over the last three quarters has been -15% and the growth rate
for the last three years has been -40%. Sales were down 14% in
the last reported quarter and the sales growth for the last three
years is a meager 2%.
Contributing to BTU's underperformance is the push for
renewable and clean energy production. The current administration
is pushing for advances in alternative energy and the coal
companies seem to be in the crosshairs of the energy policy.
Despite the poor fundamentals and the weak technical picture,
the sentiment toward Peabody Energy is still skewed to the
. The short interest ratio is only 3.4, the current put/call
ratio is lower than 99% of the readings for the past year and of
the 25 analyst with a rating on the stock, only one has a "sell"
rating on it.
I look for BTU to fall at least 15% from here and I wouldn't
be all that worried about the earnings report. The
have had very little impact on the stock over the past year. I
would short the stock with a target under $15 and a stop-loss at
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