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More Value Being Found in Coal Leaders

Jon C. Ogg

If you paid attention to the first "warning" that coal was becoming safe again, then you have probably had a good couple of weeks in the stock market. The reality is that coal is becoming less and less hated by the investment community even if the White House and many lawmakers want coal energy to be in the history books. Finding value is possible here, particularly if there are things that companies can to drive that value. It was in late September that Goldman Sachs told investors to start selectively buying coal miners.

Peabody Energy Corp. (BTU) jumped more than 9% initially after the news of its earnings. This stock is up 4% at $20.85 in late-Monday trading. This would be the first time that Peabody would be staying over $20 as a stock since May. Drivers have been stronger demand in Europe and China and with lower production costs. These trends may vary widely from producer to producer, and we would be very leery of trusting that universally.

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Some of the falling production costs also seem to be due to mine closings. Peabody is likely the best positioned of all the major U.S. coal producers due to its holdings in Australia. Here is what we are seeing elsewhere in the sector.

Alpha Natural Resources, Inc. (ANR) has seen an 8% in late day trading on Monday. At $8.06, its 52-week range is $4.78 to $10.74. We would caution that the consensus price target is down at $7.55 for the analyst price targets.

Arch Coal Inc. (ACI) is up another 8% to $4.64 against a 52-week range of $3.47 to $8.79. It is still worth under $1 billion and the consensus price target is $4.95. Its earnings were recently impacted by an impairment charge.

Consol Energy Inc. (CNX) may have made a major move into natural gas production and has moved to unlock additional value for its shareholders. This is up 4% at $38.15 in late-Monday trading. Consol's 52-week range is $26.25 to $39.23 and the consensus price target on the stock is around $44.91.

Somehow, some way, coal has been crawling back. Only the bravest of long-term investors may have the fortitude to hold coal long-term, even if active traders are using coal to make money currently. The reality is that investors still cannot make themselves believe that the coal industry is about to turn around nor that the attacks against the sector will stop.

Imagine the day if (or when) gold miners start to become favorable again.

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