Pennies on the Dollar: Is Coal Ready for a Comeback?: Peabody Energy Corporation (BTU)

Page 1 of 2

Coal stocks are cheap, and rightly so. A global economic recession, cheap natural gas, and a hostile political environment have seemingly turned coal into a second-rate energy source. But cheap companies can be a value grab — or turn out to be completely worthless. Let’s take a look at four coal stocks — three trading for pennies on the dollar and one slightly more expensive — to see if we can find a diamond in the rough.

The most important question you’ll ever ask
Famed investor Benjamin Graham said, “It is an almost unbelievable fact that Wall Street never asks, ‘How much is the business selling for?’ Yet this should be the first question in considering a stock purchase.” Mr. Graham’s simple question has many answers, and investors have worked hard to develop different ways to place a price tag on a company’s worth. Ben’s favorite: tangible book value.

Peabody Energy Corporation (NYSE:BTU)Tangible Book Value = (Assets – Liabilities) – (Intangible Assets + Goodwill)

This simple metric takes all the estimated value out of a company and leaves us with something akin to a company’s price if it were to be liquidated tomorrow. Intangible assets like brand power or business relationships are gone, giving investors a realistic number for a company’s bird-in-hand worth.

Valuation station
“Pennies on the dollar” isn’t cliche when looking at our first three coal candidates. Alpha Natural Resources, Inc. (NYSE:ANR), Arch Coal Inc (NYSE:ACI), and James River Coal Company (NASDAQ:JRCC) are all trading for less than half their tangible book value. James River slumped below the 1:1 mark in late 2011, and Alpha and Arch fell beneath last February.

ANR Price / Tangible Book Value Chart

ANR Price / Tangible Book Value data by YCharts.

But coal candidate No. 4 offers a more expensive option: Peabody Energy Corporation (NYSE:BTU) , the largest coal company around, is trading at 1.3 times its tangible book value. The company dipped briefly below during the dog days of summer but has historically maintained a higher valuation than its competitors.

BTU Price / Tangible Book Value Chart

BTU Price / Tangible Book Value data by YCharts.

The differences between Peabody and its peers are numerous, but they boil down to two rudimentary factors: management effectiveness and international exposure.

Peabody’s pretty price
Management inefficiency can be a drain on any company, but it is life and death for energy corporations. Selling coal comes down to cost effectiveness, and cheaper always wins. The first and most important metric to measure management effectiveness is gross margins.

BTU Gross Profit Margin TTM Chart

BTU Gross Profit Margin TTM data by YCharts.

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 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!