Insiders Have Been Buying Coal Stock Alliance Resources Partners

Hedge funds generally aren’t very optimistic on coal stocks, but some managers are starting to increase their holdings in other companies in the industry. In November, Dmitry Balyasny’s Balyasny Asset Management had reported ownership of over 5% of Walter Energy, Inc. (NYSE:WLT), with 3.4 million shares in its portfolio. Billionaire George Soros, meanwhile, initiated a position of 4.4 million shares in Peabody Energy Corporation (NYSE:BTU) during the third quarter of the year. Check out more of Soros’s stock picks.

Alliance Resource Partners, L.P. currently trades at 15 times trailing earnings. Wall Street analysts expect considerable improvement in 2013, and so the forward P/E multiple is only 8. We’ve already mentioned Walter and Peabody as two coal stocks, and would compare Alliance to Arch Coal Inc (NYSE:ACI), CONSOL Energy Inc. (NYSE:CNX), and Alpha Natural Resources, Inc. (NYSE:ANR). Arch Coal and Alpha are expected to be unprofitable both this year and next year. Walter and CONSOL trade at over 20 times forward earnings estimates, suggesting that in those cases the market is being more optimistic than sell-side analysts in terms of how those companies will handle the state of the coal industry. We’d also note that each of these companies saw their revenues fall at least 10% last quarter versus a year earlier. As such Alliance seems decently priced relative to its industry. Peabody, the Soros pick, carries a forward P/E of 13 which makes Alliance cheaper than that stock on a forward earnings basis as well. Peabody’s sales had been up slightly in the third quarter from its levels in Q3 2011, but net income had dropped 84%. Some further decreases in earnings are accounted for in analyst expectations. We’ve previously argued that Arch Coal, despite its recent struggles, is the best investment in the coal industry due to its strong liquidity and attractive valuation compared to its sales. Given the consensus insider activity at Alliance, as well as decent pricing in terms of forward earnings estimates, that company might now be the best coal stock to buy though it’s certainly possible that the entire industry should still be avoided if natural gas prices remain low.