The US coal mining industry has been on a decline since past many years, but even its worst critics wouldn’t have thought that it would reach the stage of extinction so soon. Badly affected by the collapse in oil and natural gas prices and harsh government regulations, the industry now is also facing a shortage of lenders. According to recent reports, several Wall Street banks are cutting back on financing coal mining operations. The situation is so dire that, on March 16, the largest coal miner in the US, Peabody Energy Corporation (NYSE:BTU), missed a $71 million debt payment and said that it is on the verge of bankruptcy. In spite of these difficult circumstances, there are a few hedge funds and investors who still think that the industry can recover from here and are putting their money where their mouth is by backing coal mining companies. In this post, we are going to take a look at the four most popular coal mining stocks going into 2016 among the over 800 hedge funds covered by us.
We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012.(see the details here).
#4 BHP Billiton plc (ADR) (NYSE:BBL)
– Investors with Long Positions (December 31): 14
– Aggregate Value of Investors’ Holdings (December 31): $169 million
Let’s start with British mining giant BHP Billiton plc (ADR) (NYSE:BBL). Amid a 26.6% drop in BHP Billiton plc (ADR) (NYSE:BBL)’s stock during the fourth quarter, its ownership among the investors covered by us increased by 10 and the aggregate value of their holdings more than doubled. Billionaire Israel Englander‘s Millennium Management was among the hedge funds that increased their stakes in the company exponentially during the October-December; it increased its holding by 293% to nearly 1.1 million shares. The stock of BHP Billiton plc has inched up over 4% so far this year, however, the heavy decline it has suffered since mid-2014 has increased its annual dividend yield to over 6.5% currently. Most analysts believe that even though the company’s earnings are cyclical and the outlook for commodities continues to be dismal, BHP Billiton’s shares has fallen too much in the last two years and are undervalued. On March 15, analysts at Morgan Stanley reiterated their ‘Overweight’ rating on the stock.
#3 Peabody Energy Corporation (NYSE:BTU)
– Investors with Long Positions (December 31): 14
– Aggregate Value of Investors’ Holdings (December 31): $22 million
At the start of this article, we talked about how Peabody Energy Corporation (NYSE:BTU) recently missed a debt payment and is gearing up for bankruptcy. Following this announcement, the company’s stock slumped by over 40% on March 16 and currently trades down by almost 70% year-to-date. However, it’s not as if Peabody Energy Corporation’s stock has suffered this fate only this year. In the past five years, shares of the coal mining company have declined by a whopping 99.75%, falling from the near $1,100 high they made in early-2011. Last year in September, the company announced a reverse one-for-fifteen reverse stock split. During the October-December period, investors covered by us with long positions in the stock declined only by one and the aggregate value of their holdings fell by 62%. However, with ownership of over 10 million shares of the company, Jorge Paulo Lemann‘s 3G Capital continued to remain its largest shareholder, at the end of December.
#2 Westmoreland Coal Company (NASDAQ:WLB)
– Investors with Long Positions (December 31): 18
– Aggregate Value of Investors’ Holdings (December 31): $43.6 million
Moving on, the dismal numbers Westmoreland Coal Company (NASDAQ:WLB) reported for its fiscal 2015 third quarter in October last year caused its stock to end the fourth quarter down by almost 60%. This decline could be the major reason why the aggregate value of investors’ holding in the company declined by 54.4% during the fourth quarter, whereas the ownership of the company among investors covered by us came down only by one during the same time. Nathaniel August‘s Mangrove Partners became the largest shareholder of Westmoreland Coal Company at the end of December; it increased its stake in the company by 371% to nearly 1.7 million shares during the October-December period. Owing largely to the rally they had in anticipation of the company’s fourth quarter results, shares of Westmoreland Coal Company (NASDAQ:WLB) currently trade up by over 35% year-to-date. While analysts were expecting the company to report a per share loss of $0.61 on revenue of $369.5 million for the fourth quarter, it declared a per share loss of $6.04 on revenue of $371.37 million.
#1 CONSOL Energy Inc. (NYSE:CNX)
– Investors with Long Positions (December 31): 29
– Aggregate Value of Investors’ Holdings (December 31): $861.28 million
Despite its stock declining by 18.6% during the fourth quarter, CONSOL Energy Inc. (NYSE:CNX) still emerged as the most popular coal mining stock among the investors tracked by us at the end of the fourth quarter. Similar to BHP Billiton, CONSOL Energy Inc. (NYSE:CNX) is also not a pure coal mining company as it also operates in the oil and natural gas industry, however, since they both run large coal mining operations we have included them in this list. The number of investors tracked by us with long positions in the stock increased by four during the fourth quarter, but the aggregate value of their positions slid by $32.7 million during the same period. Billionaire Ken Griffin‘s Citadel Investment Group raised its stake in the company eightfold to 2.98 million shares during the fourth quarter. The Street has shown confidence in several steps taken by CONSOL Energy in the past few months to reduce its capital expenditure, which is perhaps why its stock has appreciated by 56% so far this year. On February 29, the company announced that it had agreed to sell its coal assets in Virginia to Coronado IV for $420 million and also informed its investors that it will suspend paying quarterly dividends.