Peabody Energy Corporation (BTU), Alpha Natural Resources, Inc. (ANR), Yanzhou Coal Mining Co Ltd (ADR) (YZC): China Loves Coal and So Should You

The company lost money in 2011 and 2012 as it adjusted to weakening coal markets. That included closing plants and working on cost reductions. The company has been successful in its cost containment efforts over the last few quarters, though what it really needs is an uptick in demand and prices.

While Peabody Energy Corporation (NYSE:BTU)’s shares have fallen steeply over the past year, Alpha’s price has pretty much collapsed. The fact that Alpha Natural Resources, Inc. (NYSE:ANR)’s loss in 2012 was about five times the size of Peabody’s has a lot to do with this. However, this price disparity suggests that there is more upside in Alpha Natural Resources, Inc. (NYSE:ANR)’s shares when the coal industry returns to favor. That’s particularly true if met coal prices pick up on renewed Asian demand.

In the Market

Yanzhou Coal Mining Co Ltd (ADR) (NYSE:YZC) is a Chinese company. It owns mines in its home country and in Australia. Although it has grown its top line each year since 2009, recent results have been weak on a year-over-year basis. The company has been offsetting weak pricing with production growth, but that tactic hasn’t been enough lately. Quarterly sales have declines in each of the last three quarters on a comparable basis.

Although the company spilled some red ink in the September quarter, it has been profitable on an annual basis throughout this difficult period, unlike most of its peers. With the most direct exposure of this trio to China, Yanzhou Coal Mining Co Ltd (ADR) (NYSE:YZC) is a fairly aggressive play on Asia’s growth. Keep in mind, however, that accounting in China isn’t always as clean as U.S. investors might expect. So, there are potential risks that go beyond the coal market’s malaise.

Watch Asia

There are positive long-term trends afoot in the coal market. Growth in Asian demand is chief among them. The three companies above have direct ties, in varying degrees, to the region. Peabody Energy Corporation (NYSE:BTU) is probably the most diversified and safest option. Alpha Natural Resources, Inc. (NYSE:ANR)’s connection is in its large met coal export business. China-based Yanzhou Coal Mining Co Ltd (ADR) (NYSE:YZC) is the most direct bet on Asia and the most risky.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

The article China Loves Coal and So Should You originally appeared on Fool.com.

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