Morgan Stanley Sees Recent Coal Stock Rally As Overdone

In a note released Wednesday, analyst Wee-Kiat Tan from Morgan Stanley thinks the recent rally in coal stock share prices is overdone, especially given the weak outlook.

According Tan, there were several points of concern, shown below:

• "We recently met investors in Asia. Overall, the recent rally of the coal industry has been a surprise for most investors. In our view, current stock prices are not supported, given excess supply and weak demand for coal. Therefore, we believe investors should sell into the current rally and look for better opportunities at lower stock prices."

The note goes on to point out several additional headwinds to further price appreciation in coal shares, such as:

• Supply growth plus spare capacity cap coal price upside
• Weak demand is worrying
• Sector lacks catalysts

Shares of the Market Vectors Coal ETF KOL are up 0.3 percent at $19.38.