A stocking full of coal may actually be a pretty good gift this year. The space is in the top 5% of the Zacks Industry Rank at the 13th spot out of 265. One of the 'bogeymen' under the Obama administration, coal is truly one of the bigger beneficiaries of the "Trump rotation" in the wake of last month's election.
Coal remains as important to this country's energy needs as ever, but that doesn't mean it's always a good investment. Alternative forms of energy are all the rage both socially and politically; so much so that Hillary Clinton felt comfortable enough to boast that she would put a lot of coal companies out of business.
Well, she didn't win. While the long-term importance of clean energy programs and alternative fuels cannot be denied, coal stocks feel they've found a more sympathetic president in Donald Trump. Perhaps that's why we've seen a number coal companies become Zacks Rank #1s (Strong Buys) since the election.
Politics aside though, coal continues to be the main source for generating fuel in the U.S., and the long-term contracts between coal producers and their customers make for sustainable revenue for years to come. So while the country continues to work for cleaner and more environmentally safe ways to generate energy, there's no reason why coal companies can't be profitable for their investors. Here are three stocks to take a look at:
Alliance Holdings GP, L.P. (NASDAQ:AHGP)
After several quarters of missing expectations, Alliance Holdings GP, L.P. is on a little bit of a roll. The limited partnership reported net income of 81 cents per unit for its third quarter back in late October, which was nearly 11% better than the Zacks Consensus Estimate at 73 cents. This result was the second straight positive surprise after a more than 15% beat in the immediately preceding quarter. It also maintained the previous quarter's distribution to unitholders of 55 cents per unit, or an annualized rate of $2.20 per unit.
AHGP sets itself apart from other Zacks Rank #1 (Strong Buy) coal stocks by having a VGM Score of "A." This approximately $28 stock has spent much of 2016 on an uptrend, but is still well off of its target price at $32 and its 52-week high of $32.70, which explains its Zacks Style Score of "A" for Value. It also offers a dividend of $2.20 and a yield of 7.8%.
AHGP is a limited partnership that owns and controls Alliance Resource Management GP, LLC, the managing general partner of Alliance Resource Partners L.P. (NASDAQ:ARLP). ARLP produces and markets coal to utilities and industrial users in the U.S.
SunCoke Energy, Inc. (NYSE:SXC)
SunCoke Energy, Inc. plans to buy all common units of SunCoke Energy Partners, L.P. (NYSE:SXCP) that it doesn't already own. This move will create "a stronger combined company and will maximize value for both investor bases," according to SXC Chairman, President and CEO Fritz Henderson. SXC reached a new 52-week high on news of this proposal, and has more than doubled since the beginning of the year. Like AHGP, it has a Zacks VGM Score of "A."
When adjusting earnings to extinguish debt, SXC reported earnings per share of 7 cents for its third quarter back in October, which soared past the Zacks Consensus Estimate for a loss of 9 cents by nearly 178%. It also reaffirmed its full-year outlook for 2016 consolidated adjusted EBITDA between $210 million and $235 million. "We are in a position to deliver on our commitments to shareholders and remain flexible and responsive to the changing steel and coal market industry conditions," said Mr. Henderson.
SXC supplies high-quality coke to the integrated steel industry under long-term, take-or-pay contracts that pass through commodity and certain operating costs to customers. It utilizes an innovative heat-recovery coke-making technology.
Cloud Peak Energy Inc. (NYSE:CLD)
The past two months have seen a big improvement in earnings estimates for Cloud Peak Energy Inc., which explains its status as a Zacks Rank #1 (Strong Buy). The company is now expected to lose only 2 cents for 2016; an impressive improvement from a 22-cent loss estimate 60 days ago. And for 2017, the Zacks Consensus Estimate for CLD is now a profit of 13 cents, marking an even more dramatic turnaround from a 62-cent loss previously.
In its third quarter report from late October, CLD reported adjusted earnings per share of 6 cents, or 150% better than the Zacks Consensus Estimate. The quarter saw increased shipments compared to the first half of 2016 and good cost control. It has a Zacks VGM Score of "B" and, at under $6, it has some ground to make up before hitting its target price at $6.75 and its 52-week high at a little more than $8.
Cloud Peak Energy is one of the largest U.S. coal producers and the only pure-play coal company in the Powder River Basin, which is located in southeast Montana and northeast Wyoming. It mines low sulfur, sub-bituminous coal and provides logistics supply services.