United States Steel Corporation (X), Walter Energy, Inc. (WLT): Insiders Are Buying These 2 Stocks Heavily…Should You?

The Bad

Over the past year, coal has been one of the worst producing sectors in the U.S. economy as increased regulations and record low prices of natural gas have laid a one-two punch on the energy source. Lower natural gas prices have led utilities away from coal, and every coal company has felt the pain. Walter Energy, Inc. (NYSE:WLT) certainly hasn’t been immune, the company expects to lose $1.43 per share this year.

The Bull

But there certainly is some bullish news for Walter Energy, Inc. (NYSE:WLT), and for coal. Oddly enough, both of these buys (WLT, X) have something in common beyond a poorly performing stock price. Walter Energy produces metallurgical coal, which is used to produce steel. That’s not the only use for this type of coal, but it is interesting that two of the largest insider buys in recent weeks have been related to the steel industry. If steel really is poised for a rebound Walter Energy, Inc. (NYSE:WLT) will rally, but there’s more to like about coal than that.

According to recent reports by the U.S. Department of Energy, coal still has a fairly bright future. By 2035, coal output is expected to exceed 2008 numbers (which today’s output lags), led largely by a spike in demand of over 20% in emerging markets.

With or without a spike in steel demand, the coal industry appears to make some sort of rally. Natural gas prices appear to have bottomed and are rising, and coal exports are set to rise dramatically. Walter Energy expects big growth (and real profits) over the next two years, like U.S. Steel, the big question is “can it stay solvent.” Assuming it can this is another cyclical, high-risk play that could make a lot of sense to buy right now.

Insider Buying: never bullish on its own–but it helps

You’d like to think that insiders have a better understanding of their company than we could ever hope to. But that alone isn’t reason enough for us to buy a stock. The nice thing about U.S. Steel and Walter is that they have multiple catalysts. They’re undervalued and could be primed for big gains through 2014 and beyond.

That, at least, is what the people in the know think. Do you agree?

The article Insiders Are Buying These 2 Stocks Heavily…Should You? originally appeared on Fool.com and is written by Adem Tahiri.

Adem is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.