In this article we will take a look at the 10 best coal stocks to buy now. You can skip our detailed analysis of the coal industry’s outlook for 2021 and some of the major growth catalysts for coal stocks and go directly to the 5 Best Coal Stocks to Buy Now.
Since the beginning of industrialization, coal has been one of the leading energy sources in the world. In the recent years, the global production of coal has been steadily increasing and reached nearly 168 exajoules in 2019, according to Statista. Although developed countries have been pushing for more renewable energy sources for power generation, at least 38% of the electricity generated in the world is still produced by coal. The top producers of coal in the world include China, India, US, Australia, and Indonesia. One of the global leaders of coal mining in the US is Arch Resources Inc (NYSE: ARCH). Among the strongholds of U.S. coal mining are the Appalachian states West Virginia, Kentucky, and Pennsylvania, as well as Wyoming in the West.
According to the International Energy Agency’s report on the coal industry, the world’s biggest producer, importer, and consumer of coal is China which accounts for more than 65% of global coal consumption. Coal remains a cornerstone of electricity generation in China, India, and other Asian nations, which together account for around 75% of global coal demand.
However, the World Economic Forum has named coal to be the single largest source of global energy-related CO2 emissions which can have disastrous effects on the environment. This has led to many developed countries making the shift from coal to other renewable sources of energy to meet their energy demands. Hence, the coal industry is seeing a decline globally in the past few years. In 2019, global demand for coal decreased by 1.8% and power generation from the resource declined by 3%. On the contrary, electricity generation from renewables increased in the year, further squeezing coal and gas generation. The global coal consumption is estimated to have fallen by 7%, or over 500 million tonnes, between 2018 in 2020 and by 2025, the demand for coal is estimated to flatten out at around 7.4 billion tonnes.
Coal Stocks Plummeting Amid Carbon Reduction Push
Almost all coal stocks are plummeting amid lack of demand and increasing pressure on coal companies to cut emissions. For example, Warrior Met Coal Inc (NYSE: HCC) stock recently fell after Raymond James analyst Lucas Pipes said that several coal companies will face negative consequences of the latest announcement of China to reduce carbon emissions. The analyst downgraded Warrior Met Coal Inc (NYSE: HCC) to Neutral from Buy and decreased his price target to $22 from $28.
Raymond James is also covering other notable coal stocks including Arch Resources (ARCH), Alliance Resource Partners (ARLP) and Consol Energy (CEIX).
Major energy companies are starting to comply with ESG metrics given the global push towards green and sustainable energy. For example, in its latest quarterly report, Arch Resources Inc (NYSE: ARCH) said that its subsidiary’s lost-time incident rate was about 40% better than the industry average. Arch Resources Inc (NYSE: ARCH) said it also continued to reduce its Scope 1 and Scope 2 GHG emissions. The company has cut these GHG emissions by 55% since 2013.
In 2020, countries like Korea and Japan made pledges to reduce coal in the coming years, while Vietnam, Philippines, and Bangladesh are downsizing their planned coal expansions. Countries like Egypt have even cancelled their coal development programs. The UK also plans to phase-out their coal-fired power stations by 2024. There is no doubt that the future of the industry looks very uncertain, and the losses experienced by coal companies are hard to ignore. CONSOL Energy Inc. (NYSE: CEIX) lost its stock value by 44%. According to S&P Global, the stock prices of other large producers such Peabody Energy Corporation (NYSE: BTU), and Alliance Resource Partners, L.P. (NASDAQ: ARLP) have lost a fifth of their value or more since the beginning of the year.
Coal Stocks for Long-Term Investment
However, a deeper analysis shows that there’s still a huge demand of coal and coal stocks remain a sound investment option for long-term investors.
According to the International Energy Agency, global demand for coal is set to jump up by 2.6% in 2022 after a drop led by the COVID-19 pandemic. The recovering economic activity is expected to increase the demand for electricity and industrial output, and many developing countries will turn to coal to meet their energy needs. Global coal production is expected to grow at a compound annual growth rate (CAGR) of 2.3% between 2021 and 2025 to reach 8.8 billion in 2025. The best coal companies in the US are on track to take advantage of this growing demand.
Photo by Stephen Philpott on Unsplash
Like the coal industry, financial markets are also seeing winds of change, which are affecting the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s discuss our list of the 10 best coal stocks to buy now.
Best Coal Stocks to Buy Now
10. NACCO Industries, Inc. (NYSE: NC)
Number of Hedge Fund Holders: 4
Market Cap: $176.742 million
NACCO Industries, Inc. (NYSE: NC) is an Ohio-based company that ranks 10th in the list of 10 best coal stocks to buy now. Founded in 1913 and headquartered in Cleveland, NACCO Industries, engages in the mining and natural resources businesses. The company operates through three segments: Coal Mining, North American Mining, and Minerals Management. NACCO Industries, Inc. (NYSE: NC) recently announced a consolidated operating profit of $8.3 million and net income of $9.0 million, or $1.25 per diluted share, for the first quarter of 2021 compared with consolidated operating profit of $7.6 million and net income of $6.2 million, or $0.88 per diluted share, for the first quarter of 2020. In addition to the operating profit improvement, net income significantly increased mainly due to changes in the market value of equity securities held. Coal Mining revenues increased in the first quarter of 2021 from the first quarter of 2020 primarily because of reclamation revenue from Caddo Creek. The reclamation at Caddo Creek is expected to be completed in 2022. In 2021, NACCO Industries, Inc. (NYSE: NC) expects coal deliveries to be comparable to 2020 based on current expectations of customer requirements. The strong financial performance of NACCO Industries, Inc. (NC) makes it a great pick for investors today.
At the end of the fourth quarter of 2020, 4 hedge funds tracked by Insider Monkey held stakes worth $8.8 million in the firm.
9. Ramaco Resources, Inc. (NASDAQ: METC)
Number of Hedge Fund Holders: 5
Market Cap: $179.132 million
Ramaco Resources, Inc. (NASDAQ: METC) was founded in 2015 and is based in Lexington, Kentucky. It is one of the top producers of metallurgical coal in the United States. The company primarily sells to blast furnace steel mills and coke plants in the country and also caters to international buyers as well. Currently, Ramaco Resources, Inc. (NASDAQ: METC) is involved in multiple projects throughout the US, including operations in mines in West Virginia, Virginia, and Pennsylvania. The company announced in February that its board has approved expenditure on two new mines which would add almost one million new tons per year of coal with initial production starting in 2021. The total revenue of the company in 2020 was $51.14 million which was a 12.13% year-on-year increase. This increase in revenue is projected to be sustained over the current year with the opening of two new mines by Ramaco Resources, Inc. (NASDAQ: METC). Hence, this coal company has landed the number 9 spot in the 10 best coal stocks to buy now list.
8. BHP Group (NYSE: BHP)
Number of Hedge Fund Holders: 20
Market Cap: $197.239 billion
BHP Group (NYSE: BHP) is an Australian natural resources business that operates in Australia, China, India, Japan, South Korea, South America, and North America. The company operates through Petroleum, Copper, Iron Ore, and Coal segments. It was was founded in 1851 and is headquartered in Melbourne, Australia. BHP Group (NYSE: BHP) has made it to Insider Monkey’s list of the 10 best coal stocks to buy now. BHP Group (NYSE: BHP) reported a total revenue of $42.9 billion with $2.75 diluted earnings per share in its latest earnings report. In fiscal year 2020, BHP’s underlying EBITDA was $22.1 billion. The current consensus among 16 polled investment analysts is a Buy for BHP Group Ltd according to CNN Business.
Like Warrior Met Coal Inc (NYSE: HCC), Arch Resources Inc (NYSE: ARCH) and Alliance Resource Partners, L.P. (NASDAQ: ARLP), BHP is one of the best coal stocks to invest in now.
At the end of the fourth quarter of 2020, 20 hedge funds in the database of Insider Monkey held stakes worth $1.09 billion in the firm which is an increase from 18 hedge funds the previous quarter holding stakes worth $710 million.
7. Alpha Metallurgical Resources, Inc. (NYSE: AMR)
Number of Hedge Fund Holders: N/A
Market Cap: $245.494 million
Alpha Metallurgical Resources, Inc. (NYSE: AMR) is a Tennessee based coal mining company that produces, processes, and sells met and thermal coal to markets in Virginia and West Virginia. In 2020, the company had a total revenue of $1.4 billion and a market cap of $245.49 million. Despite facing a net loss of $55.1 million in the fourth quarter of 2020, Alpha Metallurgical Resources, Inc. (NYSE: AMR) has maintained a strong balance sheet with $139.2 million in unrestricted cash, deposits, and investments. Alpha Metallurgical Resources, Inc. (NYSE: AMR) has also undertaken a strategic shift towards becoming a pure play met company by closing a transaction to divest the Cumberland Mine and related assets. With a current stock price of $13.35 and a quarterly sales growth rate of 6.72%, there is huge potential for this stock to outperform the market. Thus, Alpha Metallurgical Resources, Inc. (NYSE: AMR) has earned the number 7 spot in the 10 best coal stocks to buy now list.
6. CONSOL Energy Inc. (NYSE: CEIX)
Number of Hedge Fund Holders: 15
Market Cap: $442.197 million
CONSOL Energy Inc. (NYSE: CEIX) is one of the largest coal producers in America headquartered in Canonsburg, Pennsylvania. The company has a network of underground coal mines and are also involved in the production of natural gas. CONSOL Energy Inc. (NYSE: CEIX) mines, prepares, and markets thermal coal along with offering coal export terminal services. As of 2020, the company had 657.9 million tons of proven and probable coal reserves at PAMC. According to the latest quarterly earnings report, CONSOL earned a net income of $26.4 million in the first quarter of 2021 and their quarterly adjusted EBITDA was $106.7 million. Additionally, CONSOL’s coal shipments improved to 6.9 million tons which was the highest level achieved since 2019. The company has also witnessed sustained improvements in its seaborne thermal coal market which makes it one of the best coal stocks to buy now. Moreover, due to CONSOL Energy Inc. (NYSE: CEIX)’s natural gas production, it has been able to insulate itself from the general decline in the coal industry.
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Disclosure: None. 10 Best Coal Stocks to Buy Now is originally published on Insider Monkey.
