Will The Bloodbath Ever End For Walter Energy, Inc. (WLT)?

Arch Coal and Peabody Energy are also in a better liquidity position. Arch Coal possessed $730 million in cash and cash equivalents at the end of the first quarter, while Peabody Energy had $629.5 million. Walter Energy and Alpha Natural Resources have greater exposure to met coal, while Arch Coal and Peabody Energy specialize in thermal coal. Thermal coal situation is difficult too. The recent positive point was Obama’s speech on green technologies, where he did not say anything disruptive for coal industry.

Bottom line

Coal stocks get cheaper and cheaper. They are trading at attractive price-to-book (P/B) values. Walter Energy, Inc. (NYSE:WLT) trades at 0.75 P/B, Arch Coal trades at 0.29 P/B, Alpha Natural Resources sells for 0.24 P/B and Peabody Energy sells for 0.82 P/B. The only question is whether the companies would be able to make it through the period of low prices and become profitable once again.

If you are considering adding coal names to your portfolio, make sure that you can afford the risk. In the case of Walter Energy, there is a possibility that you might lose your investment if the company goes bankrupt. At the same time, the stock could rise more than 200% if the company manages to stay afloat. This is an asymmetric risk/reward profile that many investors are searching for, but the amount of risk is huge.

Peabody Energy and Arch Coal have good liquidity positions and are definitely safer investments. More, they have exposure to thermal coal rather then met coal, which puts them in a stronger position. Alpha Natural Resources stated in its latest earnings call that it has plans to re-balance towards met coal production. Not the best move in the short term for sure, so I’ll advise to stay away from the stock.

If you want to bet on met coal, play big and choose Walter Energy, Inc. (NYSE:WLT).

The article Will The Bloodbath Ever End For Walter Energy? originally appeared on Fool.com and is written by Vladimir Zernov.

Vladimir Zernov has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Vladimir is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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