Should you buy Warrior Met Coal?
Shares of Warrior Met Coal (NYSE:HCC) have dropped almost 13% in the last 5 trading sessions.
Shares dropped 6.79% on Friday. Shares of (NYSE:KOL) VANECK VECTORS/COAL ETF were down 2.53% for the week & down 1.4% in Friday’s session.
The reason (NYSE:HCC) shares were under pressure was the news the Trump administration is announcing a 25 percent tariff on $50 billion worth of Chinese imports, escalating a trade dispute between the world’s two largest economies.
President Donald Trump has vowed to clamp down on what he calls China’s unfair trade practices. China has said that it will retaliate with $50 billion in tariffs in response, rattling financial markets.
Only hours later, China’s Finance Ministry issued a list of 545 product categories, also covering about $34 billion in exports from the U.S., to be subject to an additional 25 percent tariff starting July 6. They included a variety of agricultural products, including soybeans, corn, and wheat along with beef, pork, and poultry, plus automobiles. A second set of tariffs to begin at a later date spanned other goods including coal, crude oil, gasoline and medical equipment.
All this comes on the heels earlier this week that the Chinese government has told several large steel mills to increase their year-on-year import volumes of US met coals, as part of the country’s attempts to narrow its significant trade deficit with the US, sources told S&P Global Platts.
My reasons for buying shares of Warrior Met Coal
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The reasons I choose to add shares on this weakness are as follows:
I do not think we will enter a full-blown trade war.
The USA is China’s largest customer & they have more to lose than we do.
With or without China buying US Met Coal overall demand remains strong, but I do think China will end up importing much more US coal than in the past.
I believe steel demand will get stronger in the coming year.
On April 4, 2018, HCC issued a special dividend of $6.53. Only 2 months later the shares traded back to the pre-dividend price.
On Nov 21, 2017, HCC issued a special dividend of $11.21, again less than 2 months later shares were trading back to pre-dividend levels.
This tells me there is demand for the shares and others share the view that Met Coal is far from dead.
I think buying the shares at this level will create an opportunity for an easy 20% short-term gain & much more in the next 12 months.
See our buy alert article on shares of Five Below. Shares of Five Below have gained over 92% since the article was published.
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