Coal stocks are well-positioned to benefit from increasing oil and gas prices
- Alpha Metallurgical Resources (AMR): The coal producer is well-positioned to benefit from rising coal prices.
- Arch Resources (ARCH): Projected to see triple digits topline growth through the first half of 2022.
- Peabody Energy (BTU): Poised to benefit from rising global electricity consumption and surging steel demand.
Coal stocks have been in the limelight as oil and gas prices reach new multi-year highs. Following the Russian invasion of Ukraine, countries are looking for alternative energy sources to secure their energy needs.
Even before the most recent geopolitical concerns, the world relied heavily on coal. For example, over a third of the global electricity production comes from coal. Meanwhile, U.S. coal production increased 9.4% year-over-year (YOY) during the fourth quarter. In addition, coal exports rose 4.5% from the previous quarter.
The war has cut off coal supply from Russia, creating export opportunities for U.S. coal producers. In the wake of a proposed European Union (EU) ban on buying Russian coal, European countries imported 7.1 million tonnes of thermal coal in March, a 40.5% YOY increase.
Given these developments, the Energy Information Administration (EIA) estimates that U.S. coal production will increase by 4%, whereas coal exports will increase by 3% in 2022. Coal stocks are well-positioned to benefit from this trend.
With that information, here are 3 coal stocks to buy ahead of the ban on Russian coal.
|AMR||Alpha Metallurgical Resources, Inc.||$154.89|
|ARCH||Arch Resources, Inc.||$165.04|
|BTU||Peabody Energy Corporation||$32.10|
Coal Stocks to Buy: Alpha Metallurgical Resources (AMR)
Our first coal stock is Alpha Metallurgical Resources (NYSE:AMR), one of the largest domestic producers of steelmaking met coal. The company mines and markets met and thermal coal to steel and coke producers, industrial customers, and electric utilities.
Alpha Metallurgical announced Q4 results on March 7. Revenue soared 156% YOY to $828.2 million. Net income came in at $254.5 million, or $13.30 per diluted share, compared to a net loss of $55.1 million a year ago. Cash and equivalents ended the period at $182.6 million.
Met coal is a cyclical industry that heavily depends on steel demand. The price of met coal rose almost 60% during the fourth quarter, lifting Q4 revenue by 28% from the previous quarter despite a decline in coal volumes.
AMR stock is up 153% year-to-date (YTD), and surged 986% over the past year. Shares are trading at 2.28 times forward earnings and 1.08 times sales. Meanwhile, the 12-month median price forecast for AMR stock stands at $155, although it looks about ready to cross its forecast.
Arch Resources (ARCH)
Our second coal stock is Arch Resources (NYSE:ARCH). As a prominent producer of met and thermal coal, it is the second-largest coal supplier in the U.S.
Arch Resources released Q4 results on Feb. 15. Revenue surged 123% YOY to $805.7 million. Net income came in at $226.6 million, or $11.92 per diluted share, compared with a net loss of $78.5 million in the prior-year period. Cash and equivalents ended the period at $326.3 million.
The rising demand for steel and the energy crisis in Europe has led to soaring prices for met coal. As a result, the coal producer forecasts triple-digit revenue growth through the first half of 2022. Arch could generate up to $900 million in free cash flow this year, which it plans to return to shareholders via dividends and stock repurchases.
ARCH stock is up roughly 80% in 2022, and 278% in the past 12 months. Shares are trading at 2.74 times forward earnings and 1.16 times trailing sales. ARCH stock has smashed through the 12-month median price forecast of $147.50.
Coal Stocks to Buy: Peabody Energy (BTU)
Our final coal stock is Peabody Energy (NYSE:BTU) is the largest private-sector coal company in the world. The company mines and sells coal through roughly 21 coal mines in the U.S. and Australia.
Peabody Energy issued Q4 results on Feb. 10. Revenue jumped 72% YOY to $1.26 billion. Net income came in at $513 million, or $3.90 per diluted share, compared to a net loss of $129 million a year ago. Cash and equivalents ended the period at $954 million.
More than a quarter of Peabody’s revenue in 2021 came from five customers with which the company has 17 ongoing coal supply agreements. For fiscal 2022, management projects a significant increase in thermal and met coal volumes. Once again, the reason is the rising global-electricity consumption and steel demand.
BTU stock is up 216% year-to-date (YTD), and soared 809% over the past 12 months. Shares are trading at 3.67 times forward earnings and 0.87 times trailing sales. Finally, the stock has surpassed the 12-month median price forecast of $25.
This article originally appeared at InvestorPlace.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.