Peabody Energy Corporation (BTU), Arch Coal Inc (ACI), Cliffs Natural Resources Inc (CLF): 3 Coal Stocks to Buy

Another coal company on which I remain bullish is Cliffs Natural Resources Inc (NYSE:CLF). The company is primarily involved in providing met coal and iron ore to the steel industry. In recent times, Cliffs Natural Resources Inc (NYSE:CLF) has diversified its production and geographical base. Steel production is expected to increase by 3% in 2013, which will be positive for the company as it supplies met coal to steel producers.

Cliffs Natural Resources Inc (NYSE:CLF) delivered healthy financial performance in the recent first quarter, by posting earnings per share of $0.60 as compared to analysts’ consensus of $0.32. The company is expected to deliver healthy financial performance in the future as analysts have projected a decent five-year growth rate of 4% on average. Earlier this month, Cliffs Natural Resources Inc (NYSE:CLF) announced the extension of a supply agreement with Essar Steel for eight more years. This announcement is viewed positively as it provides volume visibility in the upcoming years.

Foolish risks

If natural-gas prices lose their upward trend and drop to a level where coal loses its cost competitiveness, this will adversely affect the coal industry. Also, a slowdown in China, India and other emerging markets’ infrastructure spending will translate into lower met coal demand and hence a depressed environment for the coal industry.

Foolish final words

As stated above, due to increases in natural-gas prices, better coal supply management and increases in steel production, the coal industry is likely to get better in the future. Therefore, I remain bullish on the three aforementioned companies as they have strong fundamentals and are superior to their peers.

These companies are working to improve their cost structures, which will support their bottom-line performance in the ongoing tough industry environment. Also, decent five-year growth projections by the analysts (as discussed above), indicate bottom-line expansion for three companies going forward.

Faizan Chudhry has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Faizan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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