Is Alpha Natural Resources, Inc. (ANR) a Good Stock to Buy?

Page 1 of 2

Along with many other stocks in the coal industry, Alpha Natural Resources, Inc. (NYSE:ANR) has seen its stock price fall dramatically over the last couple years (it is currently down 87% from two years ago, and 56% in the last year). Alpha provides both steam and metallurgical coal, each of which has been encountering demand problems over this time. Steam coal, which composes about 80% of Alpha’s production volumes (though a lower share of revenues, since it sells at a lower price), is used to fuel power plants. Electric utilities have increased their emphasis on natural gas at the expense of coal as supply has been charged by the development of shale plays in the onshore U.S. An uncertain global macro situation has reduced steel demand (U.S. Steel has seen a similar decline in its stock price in the past 52 weeks); metallurgical coal is used in steel production, and has therefore experienced lower demand in turn.

Alpha Natural Resources, Inc. (NYSE:ANR)Credit: Alpha Natural Resources, Inc. (NYSE:ANR)

Revenue decreased only slightly last year compared to 2011, though this was partly due to higher production as a result of the mid-2011 acquisition of Massey Energy (Q4 sales were 20% lower than in the same period of that year). Operating income ex restructuring and goodwill impairment charges was slightly negative for 2012, compared to slightly positive in the previous year. Cash flow from operations declined as well; while operations did bring in cash, the amount barely covered what Alpha Natural Resources, Inc. (NYSE:ANR) used on capital expenditures and acquisition of mineral rights. Wall Street analysts expect losses per share to be poor this year, before improving in 2014 (though the sell-side is unanimous in predicting losses for that year).

We track hedge funds’ quarterly 13F filings as part of our work developing investment strategies, including our finding that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year, and can also use our database to track interest in Alpha Natural Resources, Inc. (NYSE:ANR) by individual managers. Billionaire John Paulson’s Paulson & Co. appears to be trying to “catch a falling knife” in Alpha, initiating a position of 6 million shares during the fourth quarter of 2012 (see Paulson’s stock picks). AQR Capital Management, a large hedge fund managed by Cliff Asness, increased its stake by 40% to a total of 5.7 million shares (check out more stocks Asness was buying).

Other coal companies include Arch Coal Inc (NYSE:ACI), CONSOL Energy Inc. (NYSE:CNX), Peabody Energy Corporation (NYSE:BTU), and Walter Energy, Inc. (NYSE:WLT). Arch Coal and Walter are closest to Alpha in terms of market cap- each has a market capitalization less than $2 billion- and along with the rest of the industry they have been struggling with profitability as well. These peers saw revenue fall between 25% and 35% in their most recent quarter compared to the same period in the previous year. Over 10% of the float at Arch Coal Inc (NYSE:ACI) and Walter is held short, which appears to be the case for Alpha Natural Resources, Inc. (NYSE:ANR) as well. We would note that analysts are actually calling for Walter to be profitable in 2014, with a forward P/E of 10.

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!