Alpha Natural Resources, Inc. (ANR) is an Underrated Coal Play

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Alpha Natural Resources, Inc. (NYSE:ANR) is down over 50% year-to-date on the back of lower than expected coal demand and depressed mineral prices. Being the third largest coal producer in the U.S., Alpha is still sometimes overlooked. Sales were up 80% in 2011, thanks in part to its acquisition of Massey Energy, but revenues are only expected to be up 2% in 2012. Driving the stock down has also been a decline in coal volumes, which were in part a product of high stockpiles at utility companies due to the ongoing natural gas switchover.

CITADEL INVESTMENT GROUP

Alpha has some of the strongest expected sales growth of the major coal stocks for 2013; the sell-side expects it to grow top line revenues by 6%. Billionaire Ken Griffin - founder of Citadel Investment Group - was one of Alpha's biggest investors last quarter (check out Ken Griffin's newest picks).

In general, the vast amount of production cuts by U.S. coal companies should help reduce the stockpile buildup at utilities, and set the industry up for higher prices in 2013. The expected rise in natural gas prices should be a near-term catalyst as well. We believe that Alpha should trade more in line – currently at only 0.3x sales – with its thermal coal peers Arch and Alliance. We are also encouraged by the coal company’s 5-year expected growth rate that comes in at 5%, which is second to only Walter Energy.

Peabody Energy Corporation (NYSE:BTU), like many of its coal brethren, expects flat sales growth in 2013, following a 17% increase in 2012. Peabody has a robust operating scale, giving the coal company an advantage in relation to its peers. Part of this includes the company’s international exposure. Demand and pricing will primarily be driven by increased demand from China, in addition to a more bullish global steel environment. George Soros was one of Peabody's biggest hedge fund owners last quarter (check out George Soros' new picks).

What about the remaining competitors in this space?

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