Eye on Alliance Resource Partners

Yes, the Democrats will be bad for the coal business, the economy has been weak, and coal prices have been declining. But Alliance Resource Partners, L.P. (ARLP) owns 549 million tons of coal reserves. Like it or not, this is an energy source that the United States will have to rely on in the future.

ARLP, formerly known as Mapco Coal, produces and sells coal to utilities and industrial users in the U.S. ARLP performed fantastically well relative to the S&P 500 until it peaked at 45.58 in August 2005. Since then the price has declined close to 25%, but recently ARLP has been bid back up every time it has dipped below 34, forming a large descending triangle with bullish implications. ARLP stock also looks cheap according to conventional valuation measures and the dividend yield is 5.78%. There is a good dividend history too. I think the risk-reward ratio is starting to look attractive.

click to enlarge
ARLP 1-yr chart

Comments

[CrossProfit:]

Today approximately 2/3 of China’s electricity is produced by coal-fired power plants. Several hydroelectric projects, modern oil and gas power plants and some nuclear reactors are either in progress or are being planned. Replacing existing coal-fired units is not under consideration. In fact the Chinese master-plan calls for a 20% increase in coal-fired production over the next five years! This should guarantee China’s 'number one' status for global coal consumption, currently at 1/3 of all production.

Though ARLP does not export to China, others do. As Chinese consumption increases, ARLP should be in a position to fill the gaps in local consumption.

Disclosure: Opinion of a CrossProfit analyst, not the consensus at CrossProfit.com and there are no conflict of interests.
www.crossprofit.com

2006 Nov 27 04:45 AM

[Leonard Gol...:]

Alliance's GP is also public. I'd look at ahgp. The current yield is lower but the distribution will increase more than alliance's due to the structure of the mlp. If arlp does well ahgp has to do better.

2006 Nov 27 07:35 AM