U.S. Markets closed

Coal Industry Continues to Bounce Back: 5 Stocks in Focus

Jewel Saha
1 / 1

Should iShares Morningstar Large-Cap Value ETF (JKF) Be on Your Investing Radar?

Style Box ETF report for JKF

The coal industry has silently staged a comeback from its dark days. In the past 12 months, coal stocks have returned 26.0%, outperforming the Zacks S&P 500 Composite return of 17.6%. The industry has gradually turned around on constructive steps taken by the new U.S. administration along with rising international thermal coal demand. The gradual recovery in metallurgical coal prices is also enhancing the industry’s prospects.

New coal mines have opened in the United States to cater to rising demand in domestic and international markets. According to a Reuters’ report, overall capital spending in the U.S. coal industry had increased by nearly 27% in 2017. This is a positive development for the coal industry as in the past few years, coal operators were drastically cutting expenses to survive difficult times.

Is Black Gold Out of the Woods?

The coal industry was under scrutiny for quite some time despite its significant contribution toward rapid global urbanization. Coal is primarily held responsible for the flare up in carbon dioxide emission, as it is utilized in electricity generation and in other industries for its heat content.

The coal industry suffered a great deal when the last U.S. administration introduced stringent emission regulations, including the Clean Power Plan. The national pollution plan, the first to call for a limit on coal plant emission, targeted reduction of 32% by 2030 from the 2005 levels. However, it was never put into effect due to objections raised by a coalition of coal-focused states.

With or without the Clean Power Plan, a lot of U.S. utilities have shifted their focus from coal as a major source of fuel to natural gas or an alternate source of fuel to lower their carbon footprint. So, it was becoming increasingly difficult for coal industry operators to survive the difficult period, both demand and stringent regulation wise.

What’s Helping the Turnaround?

Coal operators tried to fight the difficult period when demand for coal and prices fell by cutting down on expenses, moving toward low cost mines, reducing coal production through idling mines, and lowering production shifts. However, losses could not be checked and some coal companies had to file for bankruptcy protection.

However, things have started to change for the better with the Trump administration delivering on its promise of taking pro-coal steps. President Trump’s decision to withdraw the United States from the Paris Climate Agreement was a solid step toward that direction.

Moreover, the Trump administration is set to replace the old Clean Power Plan with The Environmental Protection Agency's (EPA) Affordable Clean Energy (ACE) rule. The latest rule will allow U.S. states the option to set emission standards at the existing coal-fired power plants instead of following a single federal norm.

It will no doubt offer the much-needed respite to coal stocks. If properly implemented, the new plan is expected to lower carbon dioxide emissions at power plants by up to 1.5% by 2030 from the 2005 levels, which is a lot lower than the prior Clean Power Plan.

Agreed, global warming is a pressing concern, but at the same time it is difficult to overlook cheap coal and its reserves, which are going to last longer than oil and natural gas reserves. The booming prospects of the coal industry lies in rapid urbanization as cities cannot be built without, steel, cement, associated materials and electricity, all of which need coal as an affordable and abundant source of energy.

5 Best Coal Stocks to Buy Now

Let us focus on five top-ranked stocks from the  Zacks Coal Industry that have outperformed the Zacks S&P 500 Composite return of 4.3% in past six months.

The search has been narrowed down with a VGM Score of A or B. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows one to eliminate the negative aspects of stocks and select winners.

Canonsburg, PA-based CONSOL Coal Resources LP CCR sports a Zacks Rank #1 (Strong Buy) and has a VGM Score of A.  It produces and sells high-Btu thermal coal in the Northern Appalachian Basin and the eastern United States. The consensus estimate for the company’s EPU has moved north by 8.3% and 4.3% for 2018 and 2019, respectively, over the last 60 days. The stock has added 25.0% in the last six months. You can see the complete list of today’s Zacks #1  Rank  stocks here.

Canonsburg, PA based CONSOL Energy Inc. CEIX holds a Zacks Rank #2 (Buy) and has a VGM Score of A. The company owns and operates its mining operations in the Northern Appalachian Basin. The consensus estimate for EPS has risen 0.6% and 3.1% for 2018 and 2019, respectively, over the last 30 days. The stock is up 26.8% in the last six months.

Tulsa, OK based Alliance Resource Partners, L.P. ARLP holds a Zacks Rank # 2 and has a VGM Score of B. It produces and markets coal primarily to utilities and industrial users in the United States. The consensus estimate for the company’s EPU has moved north by 5.8% and 13.0% for 2018 and 2019, respectively, over the last 60 days. The stock has added 15.6% in the last six months.

Houston, TX-based Natural Resource Partners L.P. NRP holds a Zacks Rank #2 and has a VGM Score of A. It is a master limited partnership, principally engaged in the business of owning, managing and leasing mineral reserve properties. The consensus estimate for EPU has risen 9.8% and 7.2% for 2018 and 2019, respectively, over the last 60 days. The stock has risen 9.9% in the last six months.

Peabody Energy BTU holds a Zacks Rank # 2 and has a VGM Score of A. The consensus estimate for St. Louis, MO-based Peabody Energy’s EPS has moved up by 24.8% and 19.8% for 2018 and 2019, respectively, over the last 60 days. The stock has gained 4.6% in last six months.

The Hottest Tech Mega-Trend of All

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.

See Zacks' 3 Best Stocks to Play This Trend >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Peabody Energy Corporation (BTU) : Free Stock Analysis Report
Natural Resource Partners LP (NRP) : Free Stock Analysis Report
Alliance Resource Partners, L.P. (ARLP) : Free Stock Analysis Report
Consol Energy Inc. (CEIX) : Free Stock Analysis Report
CONSOL Coal Resources LP (CCR) : Free Stock Analysis Report
To read this article on Zacks.com click here.