Hedge Funds Staying on Sidelines when It Comes to Coal Stocks

The coal industry, which supplies coal-fired power plants and steel plants, has been enjoying a great momentum back in 2010 and 2011 amid a fast-recovering US economy, as well as strong growth prospects in China, India and other countries. However, the Dow Jones U.S. Coal Index has plummeted by a whopping 91% in the past five years, mainly owing to low natural gas prices, weaker-than-anticipated demand from China, and India’s ability to meet its coal needs with domestic production. The Environmental Protection Agency issued the Clean Power Plan that is set to diminish carbon emissions from existing power plants, thus putting more pressure on the coal industry, but coal will continue to operate as the backbone of the power system in the United States. While solar power in the United Kingdom produced more electricity than coal in May, the fossil fuel continues to represent the biggest source of power in the United States. Having this in mind, let’s have a look at the hedge fund sentiment towards five coal stocks and attempt to find out what millionaire and billionaire money managers think about the coal industry.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5. Foresight Energy LP (NYSE:FELP)

– Investors with long positions as of March 31: 3

– Aggregate value of investors’ holdings as of March 31: $9.48 Million

There were three hedge funds tracked by Insider Monkey with stakes in Foresight Energy LP (NYSE:FELP) at the end of the March quarter, up from one fund registered at the end of December. Nonetheless, the overall value of those stakes plummeted to $9.48 million from $23.98 million quarter-over-quarter, mainly due to a 61% decline in Foresight’s stock. The shares of the company engaged in the development, mining, transportation and sale of coal are down 48% thus far in 2016. Foresight Energy posted coal sales revenue of $163.10 million for the first quarter of 2016, down from $238.92 million recorded a year ago. The decline was mainly driven by a decline in coal sales volumes due to oversupply in the coal market, sustained low natural gas prices, and mild weather. A decrease in coal sales realization per ton sold also impacted the company’s top line. Jim Simons’ Renaissance Technologies LLC acquired a new stake of 38,400 shares of Foresight Energy LP (NYSE:FELP) during the first quarter of the year.

#4. Alliance Resource Partners L.P. (NASDAQ:ARLP)

– Investors with long positions as of March 31: 8

– Aggregate value of investors’ holdings as of March 31: $35.52 Million

The number of asset managers from our system with long positions in Alliance Resource Partners L.P. (NASDAQ:ARLP) remained unchanged at eight during the first three months of 2016, whereas the aggregate value of those positions fell 19% quarter-over-quarter to $35.52 million. The decrease was partially attributable to a 9% drop in the value of Alliance shares, so some funds trimmed their exposure to the company during the quarter. The diversified producer and marketer of coal in the eastern US has seen its market value jump by 21% since the beginning of 2016, but the stock is down 41% in the past year. Those investors who aren’t afraid of the dim prospects for the coal industry might be lured by Alliance’s annual dividend yield of 10.66%. The company makes a quarterly cash distribution of $0.4375 per unit. Bernard Selz’s Selz Capital reported owning 251,600 shares or units of Alliance Resource Partners L.P. (NASDAQ:ARLP) in its latest 13F.

#3. Cloud Peak Energy Inc. (NYSE:CLD)

– Investors with long positions as of March 31: 10

– Aggregate value of investors’ holdings as of March 31: $12.87 Million

The hedge fund sentiment towards Cloud Peak Energy Inc. (NYSE:CLD) didn’t change during the first quarter of 2016, with ten hedge fund vehicles followed by Insider Monkey being invested in the company at the end of both the December and March quarters. Meanwhile, the dollar value of those funds’ equity investments in Cloud Peak Energy rose to $12.87 million from $11.31 million quarter-over-quarter. The ten money managers invested in the company accumulated nearly 11% of its outstanding common stock. The US producer of coal has seen its market cap increase by 4% since the start of 2016, but the share price of the company’s stock is down a massive 48% in the past 52 weeks. Cloud Peak Energy operates solely in the Powder River Basin, said to be the lowest cost region of the major coal producing regions in the nation, with three surface coal mines. David Iben’s Kopernik Global Investors had 3.57 million shares of Cloud Peak Energy Inc. (NYSE:CLD) among its holdings at the end of March.

#2. Westmoreland Coal Company (NASDAQ:WLB)

– Investors with long positions as of March 31: 14

– Aggregate value of investors’ holdings as of March 31: $195.90 Million

Westmoreland Coal Company (NASDAQ:WLB) fell out of favor with the segment of the hedge fund industry monitored by our team, as the number of funds from our system with stakes in the company dropped to 14 from 18 quarter-over-quarter. Nonetheless, the value of those funds’ stakes spiked to $195.90 million from a mere $43.63 million quarter-over-quarter, partially owing to a 22% jump in the value of Westmoreland’s shares. The stock is 65% in the green so far this year and down by 64% in the past 12 months. The oldest independent coal company in the U.S. operates surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, as well as a 50% interest in an activated carbon plan. In late January, one of Westmoreland Coal’s subsidiaries acquired San Juan Coal Company, which operates the San Juan mine and San Juan Transportation Company, for roughly $127 million in cash. Nathaniel August’s Mangrove Partners has 1.89 million shares of Westmoreland Coal Company (NASDAQ:WLB) in its portfolio as of March 31.

#1. SunCoke Energy Inc. (NYSE:SXC)

– Investors with long positions as of March 31: 20

– Aggregate value of investors’ holdings as of March 31: $138.29 Million

SunCoke Energy Inc. (NYSE:SXC) has received some love from the hedge funds followed by our team, with the number of funds invested in the company increasing to 20 from 17 during the first quarter of 2016. Correspondingly, the overall value of those funds’ equity investment in SunCoke rose by 61% quarter-over-quarter to $138.29 million, mainly due to an 87% price appreciation of SunCoke shares. To that end, some of those 20 asset managers invested in SunCoke Energy, who aggregately amassed 33% of the company’s total number of outstanding shares, were actually reducing their exposure to the company. The largest independent producer of high-quality coke in the U.S. has seen its shares gain 86% since the beginning of 2016. The company’s revenues for the first quarter of 2016 decreased 4.0% year-over-year to $311.1 million, mainly due to the pass-through of lower coal prices. D.E. Shaw & Co. L.P., founded by David E. Shaw, owns 2.63 million shares of SunCoke Energy Inc. (NYSE:SXC) as of the end of March.

Disclosure: None