We came across a bullish thesis on NACCO Industries, Inc. (NC) on Substack by scalpavelli. In this article, we will summarize the bulls’ thesis on NC. NACCO Industries, Inc. (NC)’s share was trading at $32.11 as of March 3rd. NC’s trailing P/E was 3.75 according to Yahoo Finance.
An aerial view of an open cut coal mine, showing the vastness of the company’s mining operations.
Nacco Industries presents a compelling investment opportunity, embodying the type of mispriced small-cap stock that Nat Stewart often highlights—one where material developments remain underappreciated by the market. The company operates across multiple resource sub-sectors, including contract thermal coal mining, mitigation resources, limestone and phosphate mining, mineral rights, and lithium. Despite a history of setbacks, including delays at Thacker Pass, temporary coal concessions, and a lull in natural gas prices, recent developments indicate that Nacco is poised for a strong operational turnaround.
The coal business, long the company’s backbone, is rebounding. A previously impaired boiler is now operational, business interruption insurance has provided a financial cushion, and temporary price concessions expired in mid-2024, positioning Nacco to return to its 2022 EBITDA levels of $40 million. Similarly, the limestone mining segment, benefiting from amended contracts, is set to contribute meaningfully. Meanwhile, the mineral rights division, which invests in oil and natural gas assets, stands to gain from the ongoing recovery in natural gas prices. The mitigation resources business, once overhyped, is now expected to reach profitability in 2025, a shift that could positively surprise investors.
The lithium segment is particularly intriguing. Nacco secured an agreement in 2019 to provide operational services for Thacker Pass, the largest known lithium deposit in the U.S. Initially met with investor enthusiasm, the project suffered setbacks due to legal challenges and broader market disruptions. However, Thacker Pass is now fully funded, with General Motors investing $650 million and a $2.3 billion Department of Energy loan ensuring progress. Nacco, incentivized on production volumes and set to receive milestone payments and equipment reimbursements, is well-positioned to benefit as Phase 1 production begins in 2027. This exposure to lithium, without direct capital risk, provides significant upside.
Despite these strengths, Nacco screens poorly due to VIE accounting, which places most coal-related income below the operating line. However, its strong balance sheet, with minimal net debt and a working capital position comprising 56% of its market cap, offers a solid foundation. Governance concerns exist, given the Rankin family’s 20% ownership and high executive compensation, but this has not prevented the company from delivering long-term shareholder value.
With multiple catalysts converging—coal recovery, rising natural gas prices, improved limestone operations, mitigation resources reaching profitability, and lithium monetization—Nacco is entering a period where positive surprises are far more likely than negative ones. Current market mispricing creates an opportunity for investors ahead of a potential revaluation, making Nacco an attractive asymmetric bet.
NACCO Industries, Inc. (NC) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 5 hedge fund portfolios held NC at the end of the fourth quarter which was 5 in the previous quarter. While we acknowledge the risk and potential of NC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.