Why Coal and Utilities Indicators Matter To Long-Term Investors



What are indicators?

Stock prices are driven by various parameters. Some of these movements are driven by the economy. Other movements are due to industry scenario that the relevant company operates in. Some of the movements are driven by company-specific factors. The other movements either remain unexplained or can be explained in terms of technical and behavioral factors.

Our macro section discusses macroeconomic factors. At times, we also cover company-specific factors—such as earnings and major developments. To help you understand industry dynamics, we cover industry primers and other industry pieces.

As their name suggests, indicators show what could happen to the industry in the short to medium term—within the next six months.

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Why are we covering these indicators?

Market Realist believes in long-term investing. Why should short-term movements matter in the first place? Well, we believe that even for a long-term investor, entry and exit timing is important. When an investor wants to invest in or sell stocks (SPY) from a particular industry—like coal (KOL)—indicators can provide valuable clues about whether you should invest or sell right then or wait a few more days.

Why are we combining thermal coal and power indicators?

Thermal coal is mostly used for electricity generation. So the state of the utilities sector is by far the biggest driver of the coal industry—apart from factors like competition with natural gas.

Even for power utilities, coal remains the preferred fuel—at least for now—despite the shale gas boom.

So looking at both the industries together makes more sense. This way, we’ll be able to determine the impact of a particular variable like natural gas prices on coal companies like Arch Coal (ACI) and Peabody Energy (BTU) as well as utilities like AES (AES) and Southern (SO).


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