Cliffs Natural Resources Inc (CLF), Alpha Natural Resources, Inc. (ANR) & Molycorp Inc (MCP): Dead-Cat Bounce or Genuine Value Opportunity?

Cliffs Natural Resources Inc (NYSE:CLF)Even though the US stock market is creating new highs, some sectors are languishing. The Dow Jones Industrial Average (INDEXDJX:.DJI) has returned nearly 15% so far this year, but coal is one sector that has remained completely oblivious to the broader market rally.

It thus comes as a surprise that shares of Cliffs Natural Resources Inc (NYSE:CLF) jumped 4% recently. The company is a producer of iron ore and metallurgical coal. Both of these commodities are in abundant supply as factory output remains low and news on economic activity across the world continues to remain grim.

Cliffs Natural Resources Inc (NYSE:CLF) recently reported earnings and the results were encouraging. The core US iron ore business was strong on all fronts, full year sales guidance is also up.

North American Coal also beat on all fronts; price, costs and volume. Although the earnings contribution from iron ore is modest, investors should applaud the operational management team responsible for its turnaround.

In addition, low natural-gas prices continue to play the bull in the China shop. Trading close to its 52-week low, the stock is attractively priced from a future earnings perspective, which is also highlighted by a forward price-to-earnings ratio of 8.1.

But there’s more to this story than just value buying. The stock has a high short ratio of 23%, which indicates the market is betting that the company will not be able to control costs and will post disappointing results. Given its financial performance in recent quarters, it’s not surprising.

Underestimated play

Alpha Natural Resources, Inc. (NYSE:ANR) is also a coal producer, and by this definition it is free of fancy valuations. The company supplies steam and metallurgical coal to large utilities and industrial customers as fuel for electricity generation. As natural gas is making unabated inroads in this market, coal companies have been on the receiving end and Alpha Natural Resources, Inc. (NYSE:ANR) is no exception.

The stock has lost 44% over the last year and was recently available at $7.90, compared to its 52-week range of between $5.28 and $17.30. This is a loss- making company, so profit-valuation ratios are not applicable, but a 65% discount to its book value per share screams undervalued.

Most brokerage houses predict higher valuations for the stock as almost everyone has a ‘Hold’ or ‘Market Perform’ rating on it.

The market continues to underestimate Alpha Natural Resources, Inc. (NYSE:ANR)’s industry-leading metallurgical and export capacity, well-capitalized mines and asset potential.

Alpha Natural Resources, Inc. (NYSE:ANR)’s assets, product mix and capital re-positioning are gaining positive traction as the global metallurgical markets bottom. At current levels, it might be a good time to buy for risk-tolerant investors.