In this article, we discuss the 10 best coal stocks to invest in.
Energy produced from coal fulfils nearly one third of the global demand for power. Countries such as China, India, Australia, and Indonesia are the most prominent producers of coal around the world, with China, the world’s second largest economy, accounting for around 65% of the global consumption of coal. The burning of this black metal to produce energy results in the highest levels of CO2 emissions out of all energy production processes, as reported by the World Economic Forum. This realization has led to a gradual decline in coal’s popularity and usage during recent years, as companies adopt ESG metrics and turn towards green energy.
When factories, offices and businesses shut down during the pandemic lockdowns of 2020, the global demand for energy plummeted, and so did the demand for coal, falling 7% between 2018 and 2020, or a volume of over 500 million tonnes. The International Energy Agency (IEA) predicted that recovering global demand for energy in 2021 would lead to a 2.6% increase in the demand for coal, led by Asian countries which utilize more coal in comparison to European or North American nations. IEA also predicted that soaring prices of natural gas, and booming electricity demand would lead to a slowdown in the structural decline of coal in the EU and US, making their coal consumption increase for the first time in nearly 10 years.
Research firm Jefferies on Tuesday released a note on the mining industry, stating that the sector was “undervalued” and “poised to outperform” as China’s economy reawakens from its self-induced lockdown slumber. Analyst Christopher LaFemina raised his forecasts for coal and iron ore prices, noting that he sees coal prices staying near considerably high levels for some time. He based this view on a “lack of supply growth”, given that many companies are already in the process reducing coal consumption.
As the European Union tries to wean off its dependence on Russian natural gas, a growing demand of coal has sent the commodity’s prices soaring high, along with the prices of other metals and minerals. European companies are scrambling to find global shipments of coal, as tight gas supplies worry the continent with high power prices. Rystad Energy estimates that coal prices are likely to cross $500 per tonne in 2022, an astonishing figure for a commodity which was considered ‘dead and gone’ on Wall Street only a few years back, as evident from this 2016 report by CNBC.
Many stocks have been taken on a joyride on this coal-powered boom, with prominent coal-makers such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), CONSOL Energy Inc. (NYSE:CEIX), and Peabody Energy Corporation (NYSE:BTU) gaining 218.8%, 238.7%, and 236.3% in the last 12 months respectively. To help our readers benefit from these overwhelming share price rallies which look set to continue, we’ve named the top 10 coal stocks to buy now.
Photo by Stephen Philpott on Unsplash
Our Methodology
We studied the coal and mining industry to find 10 companies which have the best exposure to the coal business and stand to benefit from rising prices. We considered mining properties and operations, business fundamentals, position in the overall market and positive analyst ratings to choose the following stocks. We also used Insider Monkey’s database of 900+ elite hedge funds to give our readers context for the popularity of each stock among professional money managers.
Best Coal Stocks To Invest In
10. Natural Resource Partners L.P. (NYSE:NRP)
Number of Hedge Fund Holders: 2
Natural Resource Partners L.P. (NYSE:NRP) is first up on our list of the best coal stocks to invest in. The Texas-based company owns, operates and leases a portfolio of mineral properties in the United States. These include sites for coal, soda ash, trona ore, and other natural resources. Its coal reserves are situated primarily in the Illinois Basin, Appalachia and the Northern Powder River Basin in the United States. The company receives royalty payments by leasing out portions of its mineral reserves, and also deals in the transportation and processing facilities related to coal.
As of June 7, Natural Resource Partners L.P. (NYSE:NRP) has seen its share price jump an impressive 142.52% in the last 12 months, and 55.52% in the last 6 months alone. The company has a dividend-paying history stretching back to 2003, and currently offers a 6.12% yield.
In the first quarter of 2022, Natural Resource Partners L.P. (NYSE:NRP) generated $52 million of free cash flow, representing year-on-year increase of 120%. Free cash flow for the previous 12 months as of the end of March stood at $152 million, also increasing 85% on a year-on-year basis. This growth was driven by robust demand for metallurgical coal, thermal coal, and soda ash.
At the end of the first quarter, 2 hedge funds were bullish on Natural Resource Partners L.P. (NYSE:NRP) shares with combined stakes worth $23.25 million. The same number of hedge funds were stakeholders in the company a quarter ago as well. GoldenTree Asset Management owned a majority of these combined hedge fund stakes, and stood as the company’s largest Q1 shareholder with a $23.22 million position.
In addition to Natural Resource Partners L.P. (NYSE:NRP), investors are piling into coal stocks such as Alliance Resource Partners, L.P. (NASDAQ:ARLP), CONSOL Energy Inc. (NYSE:CEIX) and Peabody Energy Corporation (NYSE:BTU).
9. Alliance Resource Partners, L.P. (NASDAQ:ARLP)
Number of Hedge Fund Holders: 5
Alliance Resource Partners, L.P. (NASDAQ:ARLP) operates as a diversified natural resource company, dealing primarily in the supply of thermal and metallurgical coal to industrial users and utilities across the United States. The company has sizeable interests in oil and gas properties as well. At the start of 2022, Alliance Resource Partners, L.P. (NASDAQ:ARLP) had approximately 547.1 million tons of proven and probable coal mineral reserves, along with 1.17 billion tons of measured, indicated, and inferred coal resources in the states of Indiana, Kentucky, Illinois, Pennsylvania, Maryland, and West Virginia.
On March 30, Noble Capital analyst Mark Reichman initiated coverage of Alliance Resource Partners, L.P. (NASDAQ:ARLP) with an ‘Outperform’ rating and a $22 price target. Reichman notes that the firm’s strong cash flow generation is expected to support continued growth in its oil and natural gas royalty business, along with diversification into green energy sources. Alliance Resource Partners, L.P. (NASDAQ:ARLP) has gained a whopping 218.78% in the last 12 months, and 99.05% in the last 6 months as of June 7. The company is also a high dividend payer, with its yield standing at 6.70%.
Of the 900+ elite hedge funds tracked by Insider Monkey, 5 reported ownership of positions in Alliance Resource Partners, L.P. (NASDAQ:ARLP) at the end of the first quarter. Its largest Q1 shareholder was Magnolia Capital Fund with a $76.4 million stake.
Alliance Resource Partners, L.P. (NASDAQ:ARLP) posted revenue of $460.9 million for the first quarter of 2022, falling below analysts’ expectations by $11.7 million but showing year-on-year growth of 44.64%.
8. Hallador Energy Company (NASDAQ:HNRG)
Number of Hedge Fund Holders: 8
Hallador Energy Company (NASDAQ:HNRG) deals in the development, production and supply of steam coal to the electric power generation industry in the state of Indiana. Its coal subsidiary Sunrise Coal LLC is the second largest coal producer in Indiana, producing more than 6 million tons of coal annually through its Oaktown complex. The company uses a ‘room-and-pillar’ approach in its underground coal mines, which is one of the safest and most environmentally friendly methods of coal extraction.
8 hedge funds out of the 900+ tracked by Insider Monkey reported bullish bets on Hallador Energy Company (NASDAQ:HNRG) at the end of March, as compared to 9 hedge funds a quarter ago. The combined value of Q1 hedge fund holdings stood at $8.35 million.
Owing to the rise in energy and coal prices, Hallador Energy Company (NASDAQ:HNRG) has seen its shares surge 95.47% so far in 2022, and 114.05% in the last 6 months as of June 7. The company posted a $248 million revenue for FY2021, and its Q4 revenue stood at $65.5 million, below estimates by $1.19 million.
CastleKnight Management owned a $3.27 million position in Hallador Energy Company (NASDAQ:HNRG) during the first quarter, making it the energy firm’s top shareholder. Billionaire Jim Simons was also bullish on the coal firm in the first quarter, with his Renaissance Technologies holding a $2.86 million position in Hallador Energy Company (NASDAQ:HNRG).
7. BHP Group (NYSE:BHP)
Number of Hedge Fund Holders: 19
BHP Group (NYSE:BHP) is an Australian firm which deals in the mining and production of copper, iron ore, uranium, gold and coal products around the world. It has operations in more than 90 regions around the world, including Australia, United States, Canada and Chile. With a market cap of more than $169 billion, BHP Group (NYSE:BHP) is one of the largest mining companies in the world. It has a 22 year track record of paying dividends, and has increased its payout to shareholders for the last 5 years in a row. It offers an excellent yield of 10.11% as of June 8.
Goldman Sachs analyst Paul Young on June 1 reinstated coverage of BHP Group (NYSE:BHP) with a ‘Buy’ rating and a price target of A$51.20, citing an attractive valuation and upside from copper growth following the merger of its oil and gas portfolio with Woodside to create an independent energy company. Young also notes that the firm has traded at a premium to global mining peers over the last 10 years, and he expects this trend to continue.
In 2021, BHP Group (NYSE:BHP) posted an annual revenue of $60.8 billion, signaling an increase of 41.66% from its 2020 revenue of $42.9 billion.
19 hedge funds were long BHP Group (NYSE:BHP) at the end of the first quarter, with aggregate positions worth $2.24 billion. This is down from 25 hedge funds in the preceding quarter with $2.02 billion worth of positions in the company. Fisher Asset Management increased its stake in BHP Group (NYSE:BHP) by 117% in the first quarter of 2022, with 16.9 million shares valued at $1.3 billion which makes it the firm’s leading shareholder.
Harding Loevner, an investment management firm, talked about BHP Group (NYSE:BHP) in its Q1 2021 investor letter. The fund said:
“Our purchase of Australian mining company BHP is an example of a quality company at a moderate valuation that should deliver attractive long-term returns. We believe the market has undervalued its enduring competitive advantage due to its low cost iron and copper mining operations which has allowed the company to deliver consistent profits and cash flows across the inevitable ups and downs of the global metals cycle. While the variability of commodity prices prevents BHP from scoring in the top ranks of measured quality, we are willing to bear some of that uncertainty in return for a more attractive valuation given the company’s strong business fundamentals.”
6. CONSOL Energy Inc. (NYSE:CEIX)
Number of Hedge Fund Holders: 22
CONSOL Energy Inc. (NYSE:CEIX) is one of the best coal stocks to buy now. The company deals in the mining, production and sale of bituminous coal to industrial end-users and other clients in the United States and around the world through its export operations. It owns and operates the Pennsylvania Mining Complex (PAMC), which consists of a number of prominent coal mines and boasts approximately 612 million tons of proven and probable coal reserves. Shares of CONSOL Energy Inc. (NYSE:CEIX) have rallied 238.72% in the last 12 months as of June 7, and this rally looks set to continue given the growing demand of coal around the world.
On May 5, B. Riley analyst Lucas Pipes reiterated a ‘Buy’ rating on CONSOL Energy Inc. (NYSE:CEIX) shares and increased the price target to $63 from $46, after the firm beat Q1 expectations on the back of improving margins and strong realizations. The analysts sees an expanding order book for the coal firm in 2023.
Investors were seen loading up on CONSOL Energy Inc. (NYSE:CEIX) shares. 22 hedge funds reported bullish bets on CONSOL Energy Inc. (NYSE:CEIX) at the end of the first quarter, as compared to 15 hedge funds in the previous quarter. David Einhorn’s Greenlight Capital held 1.47 million shares of CONSOL Energy Inc. (NYSE:CEIX) priced at $55.5 million, making it the firm’s leading Q1 shareholder.
In the first quarter of 2022, CONSOL Energy Inc. (NYSE:CEIX) reported earnings per share of $1.55, falling short of analysts’ expectations by $0.30. The company pulled in revenue of $358.5 million for the quarter, which also missed estimates by $16.6 million.
Investment firm Greenlight Capital mentioned CONSOL Energy Inc. (NYSE:CEIX) in its Q2 2021 investor letter. Here’s what the fund said:
“Thermal Coal and Natural Gas
ESG investing is inflationary, as green energy is simply more expensive than hydrocarbons. Hydrocarbon energy companies are starved for capital and are being told to change their ways. The result is less exploration and drilling. Even with benchmark oil prices surging over the last year, companies are loath to drill more. Normally, the cure for high prices is high prices. With ESG in the proverbial driver’s seat, we might need much higher prices still
in order to increase investment to meet demand.There is almost nothing less popular than thermal coal. From 2011 to 2020, U.S. coal production declined by 51%. U.S. demand has fallen as we’ve shifted to alternative sources of electricity. As unpopular as coal is though, it still makes up about 20% of U.S. electricity generation. Globally, coal demand is growing modestly as China and India add power generation capacity faster than the West is reducing it. Even so, reduced oil and gas drilling has caused natural gas prices to advance and coal prices are following. Seaborne thermal coal prices are up 140% year-over-year and at the highest levels since 2011, and Northern Appalachia thermal coal prices are catching up, rising 23% in the last month alone.
We own CONSOL Energy (CEIX), the lowest cost, most efficient miner in Appalachia, which is poised to benefit from rising coal prices. It trades at 12x consensus earnings estimates that look stale to us, as they do not reflect recent coal price gains.”
Along with Alliance Resource Partners, L.P. (NASDAQ:ARLP) and Peabody Energy Corporation (NYSE:BTU), CONSOL Energy Inc. (NYSE:CEIX) is one of the best coal stocks to buy now.
5. Ramaco Resources, Inc. (NASDAQ:METC)
Number of Hedge Fund Holders: 22
Ramaco Resources, Inc. (NASDAQ:METC) is up next on our list of the best coal stocks to invest in. It deals in the mining, production and sale of metallurgical coal in the states of Virginia, West Virginia and Pennsylvania. The firm’s mineral property portfolio consists of the Elk Creek, Berwind, RAM Mine, and Knox Creek mines. It supplies coal to US-based blast furnace steel mills and coke plants, as well as metallurgical coal consumers around the globe. As of June 7, Ramaco Resources, Inc. (NASDAQ:METC) shares have climbed 194.18% in the last 12 months, making it one of the best-positioned firms in the coal industry.
Jefferies analyst Christopher LaFemina on June 7 upgraded Ramaco Resources, Inc. (NASDAQ:METC) to ‘Buy’ from ‘Hold’ with a price target of $25, up from $16. He thinks that the mining sector is currently undervalued and poised to outperform as China undergoes a recovery. LaFemina raised his coal price and iron ore forecasts, and upgraded a handful of firms in the group.
22 hedge funds owned stakes worth $38.7 million in Ramaco Resources, Inc. (NASDAQ:METC) at the end of the first quarter. This shows growing investor confidence in the company over the previous quarter where 14 hedge funds owned $13.2 million worth of positions. The biggest shareholder of Ramaco Resources, Inc. (NASDAQ:METC) in the first quarter was Millennium Management, which increased its stake by more than 500% to consist of roughly 524,000 shares worth $8.27 million.
Here is what Horos Asset Management had to say about the prospects of Ramaco Resources, Inc. (NASDAQ:METC) in its Q3 2021 investor letter:
“As mentioned above, we also initiated a position in Ramaco. The decision to invest in this U.S. metallurgical coal producer stems from our positive outlook for this commodity, given its supply and demand dynamics—which we have already explained in the past because of our Warrior investment. The company is in a phase of expansion of its production capacity, which could lead it to produce more than 4 million tons per year, compared to the current c. 2.5 million. It concentrates part of its production on customers in the United States, where its mines are located. Finally, unlike most listed coal mining companies, the Board and management team control more than 75% of the shares, so they are fully aligned with the rest of the shareholders. Although the upside is now much lower, following the rally that Ramaco had since investing at the beginning of the quarter, we believe that it is still attractive in the current market context.”
4. Peabody Energy Corporation (NYSE:BTU)
Number of Hedge Fund Holders: 27
Peabody Energy Corporation (NYSE:BTU) is one of the world’s largest producers of coal. It markets the black metal to more than 25 countries around the world, and its clients include major electric power generation and steelmaking companies. At the start of 2022, the company owned interests in 17 coal mining operations located across the United States and Australia.
On May 2, Benchmark analyst Nathan Martin raised the firm’s price target on Peabody Energy Corporation (NYSE:BTU) to $29 from $19 and maintained a ‘Buy’ rating on the company shares. Martin notes that the demand for coal remains strong, which would enable the company to generate a greater cash flow, allowing it to accelerate its goal of eliminating debt. In the last year, shares of Peabody Energy Corporation (NYSE:BTU) have gained a whopping 236.28% as of June 8.
The first quarter database of Insider Monkey showed that 27 hedge funds were bullish on Peabody Energy Corporation (NYSE:BTU) shares, as compared to 28 hedge funds a quarter earlier. With 25.85 million shares priced at $634.3 million, Elliott Management was the top shareholder of Peabody Energy Corporation (NYSE:BTU) in the first quarter of 2022.
3. Warrior Met Coal Inc. (NYSE:HCC)
Number of Hedge Fund Holders: 31
Warrior Met Coal Inc. (NYSE:HCC) ranks next on our list of the most exciting coal stocks to buy. The Alabama-based company mines, produces and sells non-thermal metallurgical coal to the steelmaking industry around the globe, including South America, Europe and Asia. It also markets natural gas, which is extracted as a byproduct of coal production. Warrior Met Coal Inc. (NYSE:HCC) has also enjoyed an impressive rally like other major coal stocks, having soared 116.40% in the last 12 months, and 58.80% so far in 2022 as of June 8.
Out of all the hedge funds tracked by Insider Monkey, 31 reported ownership of positions in Warrior Met Coal Inc. (NYSE:HCC) with an aggregate value of $353.9 million. The same number of hedge funds were stakeholders in the coal firm a quarter ago as well.
For Q1 2022, Warrior Met Coal Inc.’s (NYSE:HCC) revenue stood at $378.65 million, up 77.14% from year-ago figures but missing estimates by $34 million. EPS also came in below estimates by $0.79.
On June 7, Jefferies analyst Christopher LaFemina upgraded Warrior Met Coal Inc. (NYSE:HCC) to ‘Buy’ from ‘Hold’, with a revised price target of $50, up from $36. While the larger macro setup is risky and mining shares “should be volatile,” the analyst sees the sector as undervalued and well-positioned to outperform as demand in China amps up again.
Despite the recent outperformance, investment firm Horos Asset Management had this to say about Warrior Met Coal Inc. (NYSE:HCC) in its Q3 2021 investor letter:
“In addition, we trimmed our stake in the U.S. company Warrior Met Coal (“Warrior”), following its excellent recent performance. The metallurgical coal producer, which is necessary to produce steel in blast furnaces, benefited during the quarter from the sharp rise in the price of this commodity. Specifically, the price of Warrior’s metallurgical coal, referenced to Australia’s Premium Low-Vol FOB Hard Coking Coal, rose by 100% in the quarter and is up 300% from the lows of the beginning of the year, when it was trading at around 100 dollars per tonne. The reason for the huge price increase can be found in the bottleneck that this industry is experiencing, due to a few factors. On the one hand, the recovery of economic activity after the worst of the pandemic ended and the extra boost given by the huge fiscal and monetary stimuli from governments globally and, on the other hand, the lack of investment in new supply in recent years due to the hangover from previous overcapacity, the poor situation of some players in the industry and, especially, the political and social agenda against climate change.
This rise in the price of metallurgical coal has seen Warrior’s share price appreciate by more than 70% from last summer’s lows, contributing significantly to our fund’s performance. However, the downside of the story is that Warrior has had the bulk of its employees on strike since April, which means that the company is not producing at one of its two mines and the other is not at 100% capacity, so it is not benefiting from the current positive dynamics like other players in the industry.”
2. Arch Resources, Inc. (NYSE:ARCH)
Number of Hedge Fund Holders: 45
Arch Resources, Inc. (NYSE:ARCH) shares have gained 194.27% in the last 12 months as of June 8. The Missouri-based company deals in the mining and production of thermal and metallurgical coal across the United States, and exports it to steelmakers, utility and industrial users across Europe, Africa and Asia.
On April 27, B. Riley analyst Lucas Pipes raised the firm’s price target on Arch Resources, Inc. (NYSE:ARCH) to $234 from $231 and kept a ‘Buy’ rating on the company shares. The analyst holds that the company is well-positioned to make new records in its cash generation, given that it executed positively on strong met coal pricing despite ongoing rail-service headwinds.
45 hedge funds were stakeholders in Arch Resources, Inc. (NYSE:ARCH) at the end of the first quarter. This shows a positive trend from the preceding quarter where 40 hedge funds were long on the company shares.
In Q1 2022, Arch Resources, Inc. (NYSE:ARCH) posted an EPS of $13.02, exceeding analysts’ estimates by $1.34. Revenue of $867.94 million for the quarter also outperformed estimates by $142.6 million, and represented growth of 142.8% in comparison to the year-ago quarter.
Investment firm Nordstern Capital examined the market position and future prospects of Arch Resources, Inc. (NYSE:ARCH) in its Q1 2022 investor letter. It said:
“Arch Resources (NYSE:ARCH) is a low-cost high-quality metallurgical (met) coal producer for the global steel industry. Coal might be among the most hated products in the world, due to its reputation for being a dirty climate killer. However, steelmaking requires coal, solar panels and wind turbines require steel. Our modern society relies on steel and modernizing countries such as China,
India, Indonesia therefore rely on coal.Coal is an essential commodity, yet the industry was ‘left for dead’ by Wall Street, ESG-driven investment flows, politics, the public, and everyone else. This will probably continue to pose a wide moat for potential new entrants. Years of constrained supply and underinvestment now meet with global supply-chain issues, increased demand post-lockdowns, and inflationary pressures. In addition, the sanctions against Russia are crippling one of the big six producers, China is shifting away from Australia and Germany’s governing Green Party suddenly considers more coal. Demand up, supply down → price: moon.
Value investing veteran Bob Robotti argues in “revenge of the old economy” that US producers of physical goods are benefitting from sustained inflation. Inflation driven energy costs in China and Europe increase much faster than in the US. Hence, US energy-intensive industries such as steelmaking are at a relative advantage. A healthy US steel industry will bode well for US met coal producers such as Arch Resources…” (Click here to see the full text)
1. Teck Resources Ltd (NYSE:TECK)
Number of Hedge Fund Holders: 56
Teck Resources Ltd (NYSE:TECK) is a Canadian diversified mining company which deals in the production and worldwide supply of steelmaking coal, gold, copper, lead and silver, as well as chemicals, fertilizers, and other metals. With inflation and a supply bottleneck driving the prices of all these natural resources high, Teck Resources Ltd (NYSE:TECK) stands to benefit as one of the biggest mining firms in the world. As of June 8, it has gained 93.16% in the last 12 months, and 57.13% so far in the year.
Reporting its Q1 earnings on April 27, Teck Resources Ltd (NYSE:TECK) disclosed earnings per share of $2.31, beating estimates by $0.06. Revenue of $3.93 billion for the quarter also exceeded analysts’ predictions by $16.1 million, and represented year-on-year growth of 89.76%. On April 28, B. Riley analyst Lucas Pipes gave Teck Resources Ltd (NYSE:TECK) an unchanged rating of ‘Buy’ and raised the price target to C$58 from C$57, after the firm beat Q1 expectations.
With a $495 million stake, Soroban Capital Partners was the largest shareholder of Teck Resources Ltd (NYSE:TECK) in the first quarter of 2022. Overall, investors were seen piling into Teck Resources Ltd (NYSE:TECK) at the end of the first quarter, where 56 hedge funds owned positions in the company with a combined value of $2.64 billion. This is in contrast to 40 hedge funds a quarter earlier with $1.62 billion worth of stakes in the mining firm.
You can also take a look at 15 Fastest Growing Industries In the World and 12 Best Mining Stocks to Buy Now.
