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
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

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!