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Coal Stocks: Hots and Nots

|Includes:AHGP, Alliance Resource Partners, L.P. (ARLP), EVEIQ, LLEN, PCXCQ, WLB

 Yesterday Goldman Sachs upgraded the coal sector from neutral to attractive, alleging that a rise in the price of oil will support higher coal prices and improve investor sentiment in substitute industries (such as Coal and Consumable Fuels).

In this vein, we have employed our MarketGrader analysis to determine which companies seem to be best positioned to capitalize on the improving outlook of this industry, should Goldman’s theory materialize into improved business for coal producers. For those of you not yet familiar with MarketGrader’s analysis here’s a recap: we evaluate companies on the basis of 24 fundamental indicators that are grouped into 4 categories, growth, value, profitability, and cash flow. The individual grades for these indicators are then compiled into an overall numerical grade from zero to 100 and a Buy, Hold or Sell rating. Our system also performs technical and momentum analysis to arrive at our Sentiment rating (positive, negative or neutral), designed to gauge current investors’ mood for any particular stock.

Below are the five highest graded Coal and Consumable Fuel companies (all rated buys) in, along with their overall grade, sentiment rating, and two of their best indicators:

  1. Alliance Resource Partners LP (NASDAQ:ARLP)

Grade 83.68

Sentiment: Positive

Best indicators: Return on equity- A+ (A+ on overall profitability), P/E analysis- A+

2. Sino Clean Energy Inc (SCEI)

Grade 81.48

Sentiment: Negative

Best indicators: Long Term Market Growth- A+, Return on Equity- A+

3. L&L Energy Inc (NASDAQ:LLEN)

Grade 81.05

Sentiment: Negative

Best indicators: Long Term Market Growth- A+, Relative Profit Margins- A+

4. Alliance Holdings GP LP (NASDAQ:AHGP)

Grade 79.05

Sentiment: Positive

Best indicators: Debt/Cash Flow Ratio- A+, Capital Utilization- A+

5. Uranium Focused Energy Fund (UF.U.CA)

Grade 76.51

Sentiment: Negative

Best indicators: Growth Potential- A+, Cash Flow Growth- A+

Now for the Nots- below are the bottom five companies in the Coal and Consumable Fuels Industry. This list contains their overall grades (all corresponding to a sell rating), sentiment, and two of their worst indicators. Note that this list includes Patriot Coal Corp (PCX), which Goldman Sachs upgraded yesterday from a neutral to a conviction buy. However, MarketGrader’s analysis shows PCX’s profitability and cash flow indicators are extremely poor, raising concerns about the company’s future outlook.

  1. Evergreen Energy Inc (EEE)

Grade 8.47

Sentiment: Negative

Worst indicators: Market Growth Long Term- F, Operating Margins- F

2. Homeland Energy Group Ltd. (HEG.CA)

Grade 17.28

Sentiment: Negative

Worst indicators: Growth Potential- F, Market Value- F

3. Oxford Resource Partners LP (OXF)

Grade 19.30

Sentiment: Neutral

Worst indicators: Return on Equity- F, Capital Structure- F

4. JNR Resources Inc (JNN.CA)

Grade 19.42

Sentiment: Negative

Worst indicators: Asset Utilization- F, Operating Margins- F

5. Patriot Coal Corp (PCX)

Grade 24.38

Sentiment: Positve

Worst indicators: Debt/Cash Flow Ratio- F, Return on Equity- F