The US coal mining industry has been on a decline since past many years, but even its worst critics wouldn’t have thought that it would reach the stage of extinction so soon. Badly affected by the collapse in oil and natural gas prices and harsh government regulations, the industry now is also facing a shortage of lenders. According to recent reports, several Wall Street banks are cutting back on financing coal mining operations. The situation is so dire that, on March 16, the largest coal miner in the US, Peabody Energy Corporation (NYSE:BTU), missed a $71 million debt payment and said that it is on the verge of bankruptcy. In spite of these difficult circumstances, there are a few hedge funds and investors who still think that the industry can recover from here and are putting their money where their mouth is by backing coal mining companies. In this post, we are going to take a look at the four most popular coal mining stocks going into 2016 among the over 800 hedge funds covered by us.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012.(see the details here).
#4 BHP Billiton plc (ADR) (NYSE:BBL)
– Investors with Long Positions (December 31): 14
– Aggregate Value of Investors’ Holdings (December 31): $169 million
Let’s start with British mining giant BHP Billiton plc (ADR) (NYSE:BBL). Amid a 26.6% drop in BHP Billiton plc (ADR) (NYSE:BBL)’s stock during the fourth quarter, its ownership among the investors covered by us increased by 10 and the aggregate value of their holdings more than doubled. Billionaire Israel Englander‘s Millennium Management was among the hedge funds that increased their stakes in the company exponentially during the October-December; it increased its holding by 293% to nearly 1.1 million shares. The stock of BHP Billiton plc has inched up over 4% so far this year, however, the heavy decline it has suffered since mid-2014 has increased its annual dividend yield to over 6.5% currently. Most analysts believe that even though the company’s earnings are cyclical and the outlook for commodities continues to be dismal, BHP Billiton’s shares has fallen too much in the last two years and are undervalued. On March 15, analysts at Morgan Stanley reiterated their ‘Overweight’ rating on the stock.
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#3 Peabody Energy Corporation (NYSE:BTU)
– Investors with Long Positions (December 31): 14
– Aggregate Value of Investors’ Holdings (December 31): $22 million
At the start of this article, we talked about how Peabody Energy Corporation (NYSE:BTU) recently missed a debt payment and is gearing up for bankruptcy. Following this announcement, the company’s stock slumped by over 40% on March 16 and currently trades down by almost 70% year-to-date. However, it’s not as if Peabody Energy Corporation’s stock has suffered this fate only this year. In the past five years, shares of the coal mining company have declined by a whopping 99.75%, falling from the near $1,100 high they made in early-2011. Last year in September, the company announced a reverse one-for-fifteen reverse stock split. During the October-December period, investors covered by us with long positions in the stock declined only by one and the aggregate value of their holdings fell by 62%. However, with ownership of over 10 million shares of the company, Jorge Paulo Lemann‘s 3G Capital continued to remain its largest shareholder, at the end of December.
