Alliance Resource Partners, L.P. (ARLP): Still The Best In Its Industry

Page 1 of 2

One thing I’ve learned in over 20 years of investing is people are stubborn. Certain industries are written off for dead, and many good stocks go unnoticed because of this. Other investors stop paying attention when they realize the author owns the shares. However, I’m begging you to stick with me on this one. I’m here to tell you about Alliance Resource Partners, L.P. (NASDAQ:ARLP).

Record Results And A High Yield
My investment thesis here is really simple. Alliance pays a current yield of 6.94%. What’s equally as important is, the company raises this distribution each quarter, and has been doing so for several years. The stock sells for about 10 times projected earnings, and they have contracted more sales for 2013 than they had for 2012. The company is no flash in the pan either, considering they just reported the “12th consecutive year of record financial results.”

Alliance Resource Partners, L.P.So what’s the problem? To be honest, Alliance operates as a coal partnership. For those of you who are still reading, this is a coal company the likes of which I haven’t found an equal. If you look at their financials and projected growth, it’s hard for me to make an argument to buy another stock in this industry.

What Makes This Company Different?
Since yield is the most obvious attraction to the stock, let’s look at some other options. Investors could buy Peabody Energy Corporation (NYSE:BTU) or Arch Coal Inc (NYSE:ACI), and get yields of 1.36% and 1.7% respectively. Both companies are pure plays on the coal industry, but given the choice between a near 7% yield and less than 2%, this is a no contest. An even larger player in the natural resources field is BHP Billiton Limited (ADR) (NYSE:BHP), but even this mega-cap’s yield of 2.87% doesn’t come close to Alliance.

Another way to compare Alliance to their peers is by looking at their operating margin. A company with a higher margin either has pricing power, is a more efficient operator, or both. In either case, a company with a higher margin should be more protected from challenges in the future. Alliance reported an operating margin of 19.42%, which increased from last year’s margin of 18.39%. By comparison, Peabody’s operating margin was 13.16% last quarter, and Arch Coal’s margin came in at 12.5%. Though BHP does have a higher margin at 32.54%, this is because of the company’s diverse operations that span into precious metals and other industries besides coal.

If investors need a third reason that Alliance is different from its competition, look at what analysts are calling for in revenue growth over the next few years. In theory, solid revenue growth makes bottom line growth easier to achieve. In the next two years, analysts expect average revenue growth of 8.3% at Alliance. Considering that Peabody and BHP are expected to report about 5.5% revenue growth, and Arch Coal is expected to see negative revenue growth, you can see why Alliance may do better than its competition.

One of The Few Companies That Can Predict Its Sales For Multiple Years
Nothing is more reassuring than a company predicting sales for multiple years. Most of Alliance’s sales are contracted ahead of time, so this is more than just the company trying to make investors feel good. This last quarter, the company reported revenue up 15.8% and coal sales volumes up 19.8%.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 44 percentage points in 21 months Learn how!

Lists

The Top 10 States With Fastest Internet Speeds

10 Best Places to Visit in USA in August

Top 10 Cities to Visit Before You Die

Top 10 Genetically Modified Food In the US

15 Highest Grossing Movies Opening Weekend

5 Best Poker Books For Beginners

10 Strategies Hedge Funds Use to Make Huge Returns

Top 10 Fast Food Franchises to Buy

10 Best Places to Visit in Canada

Best Summer Jobs for Teachers

10 Youngest Hedge Fund Billionaires

Top 10 One Hit Wonders of the 90s

Fastest Growing Cities In America

Top 10 U.S. Cities for Freelancers

Top 9 Most Popular Free iPhone Apps

Top 10 Least Expensive Private Business Schools in the US

Top 15 Most Expensive Countries in the World – 2014

Top Businesses to Invest In

Top 5 Things You Might Be Doing Wrong With Your Business

Top 5 Strategic Technology Trends in 2014

Top Rags to Riches Stories

Parenting Behavior That Promotes Future Leaders

Top 5 Mistakes Made by Small Businesses

Top 5 Most Common and Potentially Devastating Financial Blunders

Top 5 Highest Paying Jobs for Web Designers

Top 6 Most Respected Professions that Also Pay Well

Top 5 Pitfalls Investors Should Avoid

Top 6 Lawyers and Policy Makers Under 30

Top 6 New Year’s Resolutions for Entrepreneurs

Top 7 Locations to Check in on Facebook

Top 5 Mistakes made by Rookie eBay Sellers

Top 7 eBook Publishers in 2013

Top 6 Health Industry Trends in 2014

5 Lessons for Entrepreneurs from Seth Godin

Top 5 Success Tips from Jordan Belfort – the Wolf of Wall Street

Best Master’s in Finance Degree Programs

Top 6 Earning Celebrities Over 50

The most expensive sports to play

Top 7 Earning Celebrities Under 25

Best 7 Online Courses to Take: Free Finance MOOCs

Top 6 Bad Habits that Promote Failure

20 Most Valuable Soccer Teams in the World in 2013

12 Most Expensive Countries for Foreign Students

Top 30 Most Influential Women in the World

Top 20 Most Expensive New Year Eve Shows

Top 5 Best Vocational Careers

Top 10 Jobs for 2014 by Salary Gain (Predictions)

Top 5 Digital Trends for 2014

Top 6 Things You Can Do To Increase Your Productivity

Top 9 Trending Smartphones in 2013

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!