In this article, we discuss the 10 best coal stocks to invest in. If you wish to skip our detailed analysis of the coal industry and the latest market situation, go directly to 5 Best Coal Stocks To Invest In.
Energy produced from coal fulfils nearly one third of the global demand for power. Countries such as China, India, Australia, and Indonesia are the most prominent producers of coal around the world, with China, the world’s second largest economy, accounting for around 65% of the global consumption of coal. The burning of this black metal to produce energy results in the highest levels of CO2 emissions out of all energy production processes, as reported by the World Economic Forum. This realization has led to a gradual decline in coal’s popularity and usage during recent years, as companies adopt ESG metrics and turn towards green energy.
When factories, offices and businesses shut down during the pandemic lockdowns of 2020, the global demand for energy plummeted, and so did the demand for coal, falling 7% between 2018 and 2020, or a volume of over 500 million tonnes. The International Energy Agency (IEA) predicted that recovering global demand for energy in 2021 would lead to a 2.6% increase in the demand for coal, led by Asian countries which utilize more coal in comparison to European or North American nations. IEA also predicted that soaring prices of natural gas, and booming electricity demand would lead to a slowdown in the structural decline of coal in the EU and US, making their coal consumption increase for the first time in nearly 10 years.
Research firm Jefferies on Tuesday released a note on the mining industry, stating that the sector was “undervalued” and “poised to outperform” as China’s economy reawakens from its self-induced lockdown slumber. Analyst Christopher LaFemina raised his forecasts for coal and iron ore prices, noting that he sees coal prices staying near considerably high levels for some time. He based this view on a “lack of supply growth”, given that many companies are already in the process reducing coal consumption.
As the European Union tries to wean off its dependence on Russian natural gas, a growing demand of coal has sent the commodity’s prices soaring high, along with the prices of other metals and minerals. European companies are scrambling to find global shipments of coal, as tight gas supplies worry the continent with high power prices. Rystad Energy estimates that coal prices are likely to cross $500 per tonne in 2022, an astonishing figure for a commodity which was considered ‘dead and gone’ on Wall Street only a few years back, as evident from this 2016 report by CNBC.
Many stocks have been taken on a joyride on this coal-powered boom, with prominent coal-makers such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), CONSOL Energy Inc. (NYSE:CEIX), and Peabody Energy Corporation (NYSE:BTU) gaining 218.8%, 238.7%, and 236.3% in the last 12 months respectively. To help our readers benefit from these overwhelming share price rallies which look set to continue, we’ve named the top 10 coal stocks to buy now.
Photo by Stephen Philpott on Unsplash
Our Methodology
We studied the coal and mining industry to find 10 companies which have the best exposure to the coal business and stand to benefit from rising prices. We considered mining properties and operations, business fundamentals, position in the overall market and positive analyst ratings to choose the following stocks. We also used Insider Monkey’s database of 900+ elite hedge funds to give our readers context for the popularity of each stock among professional money managers.
Best Coal Stocks To Invest In
10. Natural Resource Partners L.P. (NYSE:NRP)
Number of Hedge Fund Holders: 2
Natural Resource Partners L.P. (NYSE:NRP) is first up on our list of the best coal stocks to invest in. The Texas-based company owns, operates and leases a portfolio of mineral properties in the United States. These include sites for coal, soda ash, trona ore, and other natural resources. Its coal reserves are situated primarily in the Illinois Basin, Appalachia and the Northern Powder River Basin in the United States. The company receives royalty payments by leasing out portions of its mineral reserves, and also deals in the transportation and processing facilities related to coal.
As of June 7, Natural Resource Partners L.P. (NYSE:NRP) has seen its share price jump an impressive 142.52% in the last 12 months, and 55.52% in the last 6 months alone. The company has a dividend-paying history stretching back to 2003, and currently offers a 6.12% yield.
In the first quarter of 2022, Natural Resource Partners L.P. (NYSE:NRP) generated $52 million of free cash flow, representing year-on-year increase of 120%. Free cash flow for the previous 12 months as of the end of March stood at $152 million, also increasing 85% on a year-on-year basis. This growth was driven by robust demand for metallurgical coal, thermal coal, and soda ash.
At the end of the first quarter, 2 hedge funds were bullish on Natural Resource Partners L.P. (NYSE:NRP) shares with combined stakes worth $23.25 million. The same number of hedge funds were stakeholders in the company a quarter ago as well. GoldenTree Asset Management owned a majority of these combined hedge fund stakes, and stood as the company’s largest Q1 shareholder with a $23.22 million position.
In addition to Natural Resource Partners L.P. (NYSE:NRP), investors are piling into coal stocks such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), CONSOL Energy Inc. (NYSE:CEIX) and Peabody Energy Corporation (NYSE:BTU).
9. Alliance Resource Partners, L.P. (NASDAQ:ARLP)
Number of Hedge Fund Holders: 5
Alliance Resource Partners, L.P. (NASDAQ:ARLP) operates as a diversified natural resource company, dealing primarily in the supply of thermal and metallurgical coal to industrial users and utilities across the United States. The company has sizeable interests in oil and gas properties as well. At the start of 2022, Alliance Resource Partners, L.P. (NASDAQ:ARLP) had approximately 547.1 million tons of proven and probable coal mineral reserves, along with 1.17 billion tons of measured, indicated, and inferred coal resources in the states of Indiana, Kentucky, Illinois, Pennsylvania, Maryland, and West Virginia.
On March 30, Noble Capital analyst Mark Reichman initiated coverage of Alliance Resource Partners, L.P. (NASDAQ:ARLP) with an ‘Outperform’ rating and a $22 price target. Reichman notes that the firm’s strong cash flow generation is expected to support continued growth in its oil and natural gas royalty business, along with diversification into green energy sources. Alliance Resource Partners, L.P. (NASDAQ:ARLP) has gained a whopping 218.78% in the last 12 months, and 99.05% in the last 6 months as of June 7. The company is also a high dividend payer, with its yield standing at 6.70%.
Of the 900+ elite hedge funds tracked by Insider Monkey, 5 reported ownership of positions in Alliance Resource Partners, L.P. (NASDAQ:ARLP) at the end of the first quarter. Its largest Q1 shareholder was Magnolia Capital Fund with a $76.4 million stake.
Alliance Resource Partners, L.P. (NASDAQ:ARLP) posted revenue of $460.9 million for the first quarter of 2022, falling below analysts’ expectations by $11.7 million but showing year-on-year growth of 44.64%.
8. Hallador Energy Company (NASDAQ:HNRG)
Number of Hedge Fund Holders: 8
Hallador Energy Company (NASDAQ:HNRG) deals in the development, production and supply of steam coal to the electric power generation industry in the state of Indiana. Its coal subsidiary Sunrise Coal LLC is the second largest coal producer in Indiana, producing more than 6 million tons of coal annually through its Oaktown complex. The company uses a ‘room-and-pillar’ approach in its underground coal mines, which is one of the safest and most environmentally friendly methods of coal extraction.
8 hedge funds out of the 900+ tracked by Insider Monkey reported bullish bets on Hallador Energy Company (NASDAQ:HNRG) at the end of March, as compared to 9 hedge funds a quarter ago. The combined value of Q1 hedge fund holdings stood at $8.35 million.
Owing to the rise in energy and coal prices, Hallador Energy Company (NASDAQ:HNRG) has seen its shares surge 95.47% so far in 2022, and 114.05% in the last 6 months as of June 7. The company posted a $248 million revenue for FY2021, and its Q4 revenue stood at $65.5 million, below estimates by $1.19 million.
CastleKnight Management owned a $3.27 million position in Hallador Energy Company (NASDAQ:HNRG) during the first quarter, making it the energy firm’s top shareholder. Billionaire Jim Simons was also bullish on the coal firm in the first quarter, with his Renaissance Technologies holding a $2.86 million position in Hallador Energy Company (NASDAQ:HNRG).
7. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 19
BHP Group (NYSE:BHP) is an Australian firm which deals in the mining and production of copper, iron ore, uranium, gold and coal products around the world. It has operations in more than 90 regions around the world, including Australia, United States, Canada and Chile. With a market cap of more than $169 billion, BHP Group (NYSE:BHP) is one of the largest mining companies in the world. It has a 22 year track record of paying dividends, and has increased its payout to shareholders for the last 5 years in a row. It offers an excellent yield of 10.11% as of June 8.
Goldman Sachs analyst Paul Young on June 1 reinstated coverage of BHP Group (NYSE:BHP) with a ‘Buy’ rating and a price target of A$51.20, citing an attractive valuation and upside from copper growth following the merger of its oil and gas portfolio with Woodside to create an independent energy company. Young also notes that the firm has traded at a premium to global mining peers over the last 10 years, and he expects this trend to continue.
In 2021, BHP Group (NYSE:BHP) posted an annual revenue of $60.8 billion, signaling an increase of 41.66% from its 2020 revenue of $42.9 billion.
19 hedge funds were long BHP Group (NYSE:BHP) at the end of the first quarter, with aggregate positions worth $2.24 billion. This is down from 25 hedge funds in the preceding quarter with $2.02 billion worth of positions in the company. Fisher Asset Management increased its stake in BHP Group (NYSE:BHP) by 117% in the first quarter of 2022, with 16.9 million shares valued at $1.3 billion which makes it the firm’s leading shareholder.
Harding Loevner, an investment management firm, talked about BHP Group (NYSE:BHP) in its Q1 2021 investor letter. The fund said:
“Our purchase of Australian mining company BHP is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
6. CONSOL Energy Inc. (NYSE:CEIX)
Number of Hedge Fund Holders: 22
CONSOL Energy Inc. (NYSE:CEIX) is one of the best coal stocks to buy now. The company deals in the mining, production and sale of bituminous coal to industrial end-users and other clients in the United States and around the world through its export operations. It owns and operates the Pennsylvania Mining Complex (PAMC), which consists of a number of prominent coal mines and boasts approximately 612 million tons of proven and probable coal reserves. Shares of CONSOL Energy Inc. (NYSE:CEIX) have rallied 238.72% in the last 12 months as of June 7, and this rally looks set to continue given the growing demand of coal around the world.
On May 5, B. Riley analyst Lucas Pipes reiterated a ‘Buy’ rating on CONSOL Energy Inc. (NYSE:CEIX) shares and increased the price target to $63 from $46, after the firm beat Q1 expectations on the back of improving margins and strong realizations. The analysts sees an expanding order book for the coal firm in 2023.
Investors were seen loading up on CONSOL Energy Inc. (NYSE:CEIX) shares. 22 hedge funds reported bullish bets on CONSOL Energy Inc. (NYSE:CEIX) at the end of the first quarter, as compared to 15 hedge funds in the previous quarter. David Einhorn’s Greenlight Capital held 1.47 million shares of CONSOL Energy Inc. (NYSE:CEIX) priced at $55.5 million, making it the firm’s leading Q1 shareholder.
In the first quarter of 2022, CONSOL Energy Inc. (NYSE:CEIX) reported earnings per share of $1.55, falling short of analysts’ expectations by $0.30. The company pulled in revenue of $358.5 million for the quarter, which also missed estimates by $16.6 million.
Investment firm Greenlight Capital mentioned CONSOL Energy Inc. (NYSE:CEIX) in its Q2 2021 investor letter. Here’s what the fund said:
“Thermal Coal and Natural Gas
ESG investing is inflationary, as green energy is simply more expensive than hydrocarbons. Hydrocarbon energy companies are starved for capital and are being told to change their ways. The result is less exploration and drilling. Even with benchmark oil prices surging over the last year, companies are loath to drill more. Normally, the cure for high prices is high prices. With ESG in the proverbial driver’s seat, we might need much higher prices still
in order to increase investment to meet demand.There is almost nothing less popular than thermal coal. From 2011 to 2020, U.S. coal production declined by 51%. U.S. demand has fallen as we’ve shifted to alternative sources of electricity. As unpopular as coal is though, it still makes up about 20% of U.S. electricity generation. Globally, coal demand is growing modestly as China and India add power generation capacity faster than the West is reducing it. Even so, reduced oil and gas drilling has caused natural gas prices to advance and coal prices are following. Seaborne thermal coal prices are up 140% year-over-year and at the highest levels since 2011, and Northern Appalachia thermal coal prices are catching up, rising 23% in the last month alone.
We own CONSOL Energy (CEIX), the lowest cost, most efficient miner in Appalachia, which is poised to benefit from rising coal prices. It trades at 12x consensus earnings estimates that look stale to us, as they do not reflect recent coal price gains.”
Along with Alliance Resource Partners, L.P. (NASDAQ:ARLP) and Peabody Energy Corporation (NYSE:BTU), CONSOL Energy Inc. (NYSE:CEIX) is one of the best coal stocks to buy now.
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