Peabody Energy Corporation (BTU), BHP Billiton plc (ADR) (BBL): Coal Demand Won’t Plateau for Another 20 Years

Back at home

An option closer to home is Cloud Peak Energy Inc. (NYSE:CLD). The company is the third-largest coal producer in the United States and focuses on the low-cost Powder River Basin region. Cloud Peak was spun-off from mining giant Rio Tinto plc (ADR) (NYSE:RIO) in 2009. Despite the industry’s difficulties, the company has remained profitable despite its top line trending lower.

Part of that strength comes from the desirability of its cheap coal in comparison to natural gas, which has seen its price rise dramatically year over year. That said, Cloud Peak Energy Inc. (NYSE:CLD) hasn’t been immune to the coal industry’s problems, as sales and earnings have been lower year over year in each of the last two quarters. In fact, in the first quarter, earnings fell over 40% year over year to $0.25 a share.

Like its brethren in the coal space, Cloud Peak Energy Inc. (NYSE:CLD) is a turnaround play. However, while largely a domestic supplier, it is pushing into the export market so it, too, can benefit from Asian demand. That should give the company an upside catalyst when demand and prices start to stabilize. The company has never paid a dividend, so income investors shouldn’t bother with it. But turnaround types should take a look.

Time heals all wounds

Coal is unloved right now, but that should start to change as demand and pricing pick up. Although 2013 is likely to be a transition year for the industry, it might be the best opportunity to pick up these companies at seriously discounted prices. Peabody Energy Corporation (NYSE:BTU) is an industry leading player with notable exposure to Asian demand. BHP Billiton plc (ADR) (NYSE:BBL) offers diversification on the product front, but a focus on the Asian region. Cloud Peak Energy Inc. (NYSE:CLD) is domestically focused, but has cheap coal and is increasingly looking abroad for sales. All three are worth a look for investors seeking coal exposure.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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