We are putting out a buy alert on Colonial Coal International Corp. (CAD.V) (CCARF). The stock rose 53% on 1.6 million volume in Canada on Wednesday and we believe this rise will continue for the rest of the week. We are up to 985 followers on our ValueTrades blog despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can also follow this blog by clicking the follow button on the top of the left hand panel. We have 67 followers so far on here. You can follow us on Twitter @StockTradePicks which has over 5,000 followers.
There is no apparent company-specific reason why the stock moved up as the company hasn't released any news recently. What's particularly interesting is how much it managed to move on such little volume. 1.6 million volume is high compared most daily volume of around 100,000 shares. But it's less than 1% of the total 174 million shares outstanding.
The stock could be reacting to the skyrocketing price of coal in China, which has just surpassed $600 per ton. CAD's Huguenot Coal Project has 397 million tons of coal while the Flatbed Coal Project has 298 million tons for a total of 695 million tons. This is about $0.40 CAD per ton based on a $277 million market cap and $1.59 stock price. So it's clearly very undervalued even after Wednesday's run.
There is speculation that a large player is buying in as a strategic investment or possibly as a precursor to a buyout. We think that this speculation makes sense as this rise came out of nowhere and it looks like many shares were purchased in big chunks. A buyer in Canada needs to report their position once they have an equity stake in the company that it at least 10%. Since only 1% of the float was purchased today, that could be a while and the stock could be at a much higher price before the buyer's intent is made public.
Pay close attention to CAD.V on Thursday. We think the buying will continue and if Wednesday is any indication, it won't take much to cause the stock price to heavily move upwards.
Disclosure: We are long CAD.V
