A tough situation with Massey Energy (MEE) as the mining accident posts very unwanted attention on a sad situation. The closest thing in stock terms to what happened is an earnings miss (which one can avoid by not being overweight a stock going into earnings) or a surprise news event such as what Google just went through with China (which is impossible to aviod), but obviously this accident is a lot more serious in terms of the human condition.
Stock wise in a span of 48 hours you have a stock that went from a 52 week high to a stock that has broken support. Bad press and regulators certain to swarm will cause uncertainty in the near term. On a business basis this mine was full of the metallurgical coal that the market is infatuated with at this point.
- Shares of Massey Energy Co. fell Wednesday as rescuers worked to gain entry and search for possible survivors in the coal producer's mine where 25 people died in an underground explosion. In afternoon trading Wednesday, Massey's shares fell $2.95, or 6.1 percent, to $45.50, adding to Tuesday's more than 11 percent decline.
- The blast and ongoing investigation likely will keep the mine out of production for a lengthy period. It produced about 1.2 million tons of metallurgical coal, which is used in steel manufacturing.
- The financial impact from lost production on Massey's earnings before interest, taxes, depreciation and amortization, or EBITDA, could be up to $50 million based on an estimate of a margin per ton of $40, according to Standard& Poor's Ratings Services. Late Tuesday, it said it may lower its debt ratings on Massey.
For those with a 2+ year horizon this dip will begin to present a buying opportunity since coal is not going away. But for the next 2 weeks or months, I am not sure if Massey will partake in the sector's love fest.
Ignoring the news flow, I will simply follow the charts for now and cut back the position as the stock broke its 50 day moving average and re-assess based on how it does the next week. If it quickly jumps back over, this will have been a buying opportunity (hate to couch it in those terms) - if it struggles, then it might detatch from the rest of the group and near term other stocks in the sector should be emphasized.
For today, I'll cut the position in half and take a 8%ish loss; position size was moderate so nothing tremendously awful portfolio wise. If the stock breaks below $44 we'll have to consider dumping the rest and revisiting later. Further, if the stock falls to the 200 day moving average, we'll have to reconsider the name - despite the near term financial fallout.
Long Massey Energy in fund; no personal position