After a 27% year-to-date tumble, it might be hard to find positive things to say about the Market Vectors Coal ETF (NYSEArca: KOL). In fact, some investors may be ignoring the downtrodden ETF altogether as seemingly insatiable demand for coal from China, India and other developing nations has not helped prop up KOL this year.
Ignorance may not be bliss in the case of KOL because the ETF has climbed 8% since the start of July. How many investors have noticed is up for debate, though the fund did gain 2.3% Tuesday on volume that was well above average. [KOL’s Collapse Turns Nasty]
KOL got a lift after Peabody Energy (NYSE: BTU), the fund’s fourth-largest holding, reported a second-quarter profit of 33 cents a share, far better than the five-cent loss analysts expected. The good news for Peabody also helped boost shares of rival Consol Energy (NYSEL: CNX), KOL’s second-largest holding. Combined, the two stocks represent 14.2% of the ETF’s weight.
Walter Energy (NYSE: WLT), one of KOL’s most beleaguered constituents, soared 4.4% on heavy volume Tuesday. However, Walter fell 1% after-hours and headlines that underscore the risks associated with getting too bullish too soon on coal stocks. [Walter’s Woes Plague Coal ETF]
Last month, shares of Walter sank after the company pulled a planned $1.55 billion credit refinancing plan. Although Walter’s second-quarter metallurgical coal output was about 2.9 million metric tons, about 7 percent more than, the company slashed its quarterly dividend to a penny a share from 12.5 cents as a condition for amending a $2.73 billion credit pact, reports Simon Casey for Bloomberg.
Walter closed Tuesday with a tempting 3.7% dividend yield, but with the dividend cut, the stock will now yield less than 0.3%. Making KOL’s recent rise potentially dangerous is coal miners share something in common with their gold brethren: Falling prices could erode profits. [Gold Mining ETFs Soar]