At first glance, the concept of coal stocks to buy doesn’t really make a whole lot of sense. After all, social and political winds incentivize the push toward clean and renewable energy sources. On the flipside, coal harkens to memories of the Industrial Age, which is not congruent with the current Information Age.
Still, the U.S. Energy Information Administration helped explain part of the rise in coal stocks. Despite forecasts calling for reduced demand, the present gap between coal produced and consumed has and will remain wide throughout this year compared to last. Plus, other factors – including unusual weather dynamics – have lifted sentiment.
For example, coal inventory allows utilities to generate electricity during periods of high demand. So, when the temperature gets unusually hot, this catalyst should move the entire energy industry. Add population growth dynamics and you still have a case for coal stocks to buy.
NACCO Industries (NC)
Headquartered in Cleveland, Ohio, NACCO Industries (NYSE:NC) operates under three business segments: coal mining, North American mining, and minerals management. Since the start of the year, NC slipped about 3%. In the trailing one-year period, shares gave up more than 25% of equity value. Still, with NC gaining almost 8% in the past 30 (calendar) days, it could be on for a comeback.
To be sure, NACCO isn’t an investment to enter into lightly. With a market capitalization of just under $264 million, it’s one of the riskiest ideas among coal stocks. That said, the underlying financials aren’t half-bad. Notably, NACCO prints a decent balance sheet profile, with an equity-to-asset ratio of 0.76x. That’s above the sector median of 0.61x.
On the profitability side, Naaco’s net margin comes in at 13.77%, which is slightly better than average. However, it’s been consistently printing annual net income, which lifts confidence. According to Barron’s, the only analyst covering NC pegs it as a hold. However, the average price target of $38.79 implies about 11% upside.
Arch Resources (ARCH)
A coal mining and processing company, Arch Resources (NYSE:ARCH) mines, processes, and markets bituminous and sub-bituminous coal with low sulfur content. Per its public profile, Arch represents the second-largest supplier of coal in the nation. It’s also incredibly relevant, with shares popping up over 27% since the beginning of this year.
Adding to the impressive performance, ARCH gained over 9% just in the trailing five sessions. Still, it may still have some legs left, making ARCH one of the coal stocks to buy. Financially, there’s a lot to like here. Most notably, in my opinion, the company commands a strong balance sheet. Specifically, its cash-to-debt ratio comes in at 1.73x, above nearly 74% of its peers.
Also, Arch levers impressive profit margins: its operating margin lands at 21.29% while its net margin clocks in at 27.67%. Both stats rank well above their respective sector averages. Finally, analysts peg ARCH as a unanimous strong buy with a $181.75 price target, implying almost 7% upside.
Peabody Energy (BTU)
Based in St. Louis, Missouri, Peabody Energy (NYSE:BTU) primarily focuses on the mining, sale and distribution of coal. Later, this commodity is purchased for use in electricity generation and steelmaking. According to data compiled by Statista, Peabody represents the largest private-sector coal company in the world. Since the start of the year, BTU stock moved up about 4%.
Now, that sounds very modest compared to some other coal stocks to buy. However, Peabody has been on the move, with BTU up over 20% in the trailing one-month period. Even with this performance, shares should still have some legs. Notably, BTU trades at only 1.03x tangible book value, lower than the sector median of 1.77x. Additionally, it only trades at 2.55x free cash flow (FCF), lower than nearly 70% of its peers. Just as well, it posts a robust return on equity (ROE) of 48.46%.
Lastly, analysts rate BTU as a strong buy with a $27.75 target, implying nearly 7% growth potential.
SunCoke Energy (SXC)
Billed as a leading producer of coke – a solid carbonaceous residue derived from low-ash, low-sulfur bituminous coal and definitely not the kind you drink – SunCoke Energy (NYSE:SXC) has been in the business since its founding in 1960. Even better, this old dog can still learn new tricks, evidenced by its rise of over 20% since the January opener.
In the trailing one-year period, SXC soared to nearly a 75% gain. While that might lead to initial concerns about holding the bag, Suncoke could be one of the top coal stocks. Primarily, the company benefits from strong profit margins. For example, its operating and net margins come in at 6.81% and 4.38%, respectively. Both stats rank above at least 61.75% of the sector average.
Additionally, Suncoke features an impressive return on equity (ROE) of 15.49%. Yet it still trades at a trailing earnings multiple of only 9.58x. Turning to Wall Street, analysts peg SXC as a moderate buy with an $11 target, implying over 8% upside.
Ramaco Resources (METC)
Based in Lexington, Kentucky, Ramaco Resources (NASDAQ:METC) might not be the biggest enterprise among coal stocks to buy. Currently, the company carries a market cap of $535 million, which isn’t really that high. Nevertheless, investors love METC stock, which has popped to over a 30% return since the start of the year.
In the trailing month, METC skyrocketed over 40%, reflecting the urgency toward coal stocks. Even with this remarkable performance, prospective speculators may still enjoy continued gains. Perhaps most conspicuously, Ramaco is a robustly profitable enterprise. For instance, its net margin comes in at 12.87%, above 87% of sector rivals.
Also, Ramaco prints an impressive three-year revenue growth rate of 30.9%. Yet METC still trades at only 5.69X forward earnings, below the sector median of 8.1x. Looking at the Street, analysts rate METC a moderate buy. Their average price target stands at $12, implying just over 9% upside potential.
Teck Resources (TECK)
Headquartered in Vancouver, British Columbia, Canada, Teck Resources (NYSE:TECK) is a diversified natural resources company. Mainly, it’s engaged in mining and mineral development, including coal for the steelmaking industry. Additionally, Teck Resources produces copper and zinc, as well as certain precious metals. Since the start of the year, TECK gained nearly 18% of its equity value.
What really stands out for TECK is its near-term resilience. In the past five sessions, shares gained over 9%. In contrast, the benchmark S&P 500 index lost almost 1%. Even with this comparatively remarkable performance, TECK can still provide more but it will be risky.
On the positive side, Teck Resources benefits from strong profit margins. For example, its operating margin clocks in at 30%, above 89.36% of its peers. However, it has a high debt balance sheet and it’s not particularly a great deal in terms of financial multiples. Still, analysts rate TECK as a strong buy with a $51.50 target, implying almost 20% growth.
Alliance Resource (ARLP)
Hailing from Tulsa, Oklahoma, Alliance Resource (NASDAQ:ARLP) is a diversified energy company that generates income from coal production. Per its website, Alliance is the largest producer of coal in the eastern U.S. It also generates royalty income from oil and gas-producing regions across the country. Since the start of the year, ARLP swung up over 14%.
Like many other coal stocks to buy, ARLP has benefitted from a near-term resurgence. In the past 30 days, shares returned stakeholders over 10% of value. And in the past five sessions, ARLP is up 3%, which is far better than the benchmark equity index. Just as well, Alliance enjoys a consistently profitable business. Notably, its net margin is 28.1%, above 80.47% of its peers.
Also, it’s worth pointing out that ARLP’s forward earnings multiple sits at 3.88X, lower than 88.24% of the competition. So, there could be some value here. In closing, analysts peg ARLP as a moderate buy with a $30 target, implying over 33% upside.
On the date of publication, Josh Enomoto 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.