Booking A 44% Gain In 17 Days. Now What?

Sometimes you just nail a trade.

Last week we wrote about a perfect trade setup on Peabody Energy Corp. (NASDAQ: BTU).

We were given a 7:1 risk-reward setup. (A better setup than when we took a 36% gain in 4 months on Texas Pacific Land Trust.)

History shows this trade averaged about a 33% gain in 1-4 months.

We just closed our first tranche for a 44% gain in 17 days.

We still hold a 4.75% position in BTU. There’s plenty more juice left to squeeze.

You want to let your winners run. Especially when they’re in an uptrend.

BTU is — and has been — in an uptrend.

And that’s just from a technical perspective.

However, knowing Europe is fighting tooth and nail to increase their storage before the winter, there’s a strong fundamental case for coal.

This fundamental case is what’s making us rethink the time frame to which we hold this position.

Peabody is going to deleverage their balance sheet after pumping so much cash flow. They’ve already reduced their debt by approximately $500 million since 2020.

Here’s their plans from their most recent investor presentation.

They’re expected to have more than $2 billion in cash by the end of this quarter.

So deleveraging will come easy.

This puts their financial position in a significantly better spot. One in which they can start returning capital to shareholders. Either via dividends or buybacks.

Dividends would open up Peabody to a whole new set of income investors.

Buybacks are accretive because they reduce the share count… meaning our ownership percent increases.

The estimates on Peabody put their stock at $45+ — 67% higher from here. These assume a ramp of their Wambo mine. Deleveraging the balance sheet. And increasing their operating cash.

Remember, the fundamental case for BTU is not our base case. We’re trading this stock.

But the fundamental case for BTU gives us significant upside — in addition to potential future dividends.

We took a 44% gain in 17 days. Mighty’s new stop loss will be the 200-day moving average — just above $21. And we’ll continue holding BTU… hoping the fundamental thesis plays out for us along the ride.

Good investing,

Lance

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