Alliance Resource Partners, L.P. (ARLP), Linn Energy LLC (LINE): The Contrarian Coal Stock Killing the Competition

Putting a ring on prices

Another benefit that Alliance Resource Partners, L.P. (NASDAQ:ARLP) has going for it is a result of the company’s structure. As a master limited partnership, the company is very focused on delivering a steady cash flow. The concept is very close to another upstream energy producer that is an MLP, Linn Energy LLC (NASDAQ:LINE), although the two companies achieve this goal in two very different ways. For Linn Energy LLC (NASDAQ:LINE), the company writes oil hedges on the open market to ensure a steady cash flow, which can be costly if not hedged properly, and also has them in a bit of hot water lately with the SEC.

Alliance Resource Partners, L.P. (NASDAQ:ARLP) has a different approach. The company writes long-term take-or-pay contracts with consumers like utility companies to have a predictable cash flow for several quarters in advance. Today, the company has the rest of its 2013 production sold out and 80% of its 2014 production is under contract. This, to some degree, had shielded the company from weak coal pricing back in 2012, and has helped it stand out among its peers with the numbers it has posted lately. This could prove to be less advantageous if coal prices were to shoot up past those contracted prices, but again the company is more focused on steady cash rather than the big cyclical swings.

What a Fool believes

Finding a coal stock that has some great upside can be rather difficult. The industry has been hit with a multitude of problems ranging from increased competition from other energy sources for power generation to increased environmental regulations. But, as Peter Lynch has said, its much better to be a great company in a bad industry rather than a good company in a great industry. Alliance could be that kind of company.

The article The 1 Contrarian Coal Stock Killing the Competition originally appeared on Fool.com and is written by Tyler Crowe.

Fool contributor Tyler Crowe owns shares of LINN Energy, LLC. You can follow him at Fool.com under the handle TMFDirtyBird, on Google +, or on Twitter, @TylerCroweFool.The Motley Fool recommends Alliance Resource (NASDAQ:ARLP) Partners, L.P.

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