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Top 4 Coal-Mining Stocks as of September 2018 By Kevin B. Johnston | Updated September 17, 2018 — 8:55 AM EDT
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Coal mining is a tricky business right now. Demand for coal has been decreasing and could continue on that downtrend. However, China still needs a lot of coal, and more relaxed restrictions under President Donald Trump could be the boost the industry needs. In his first speech to Congress, Trump said, "We are going to stop the regulations that threaten the future and livelihood of our great coal miners."
So many coal companies have gone out of business that the remaining ones have longevity to their credit. We have chosen four coal companies that look like they can make money going forward and give investors an opportunity to profit in this sector. All figures are current as of Sept. 16, 2018. (See also: Can President Trump Make Coal Stocks Great Again?)
Cloud Peak Energy Inc. (CLD)
The stock of Cloud Peak Energy rose steadily in 2016, but the price saw a decline throughout a good portion of 2017. This occurred on low volume, so the move looked like an orderly base rather than a major sell-off. A steep drop on Feb. 23, 2017, was the result of the company offering new common shares. This diluted the price of existing shares. Investors were watching to see if the stock would remain resilient by breaking out of its base, and sure enough, the stock broke out in October 2017. After moving sideways for several months, the stock ticked up again in the final trading days of 2017, peaking at over $5.50 per share in January 2018 before selling off sharply throughout the year to current levels around $2.17.
Cloud Peak is focused primarily on the United States Powder River Basin, but it also has operations in other regions. Earnings growth is expected to slow for the next three years, so this would be a contrarian play. If you think deregulation will turn the coal industry around, the recent declines in the stock could make it look like a bargain. Cloud Peak owns or controls 1.1 billion tons of reserves that are either proven or probable. It is developing projects in Wyoming and southern Montana, and it owns surface mines in both of those states.
The company posted rising revenues and positive operating income over the second and third quarters of 2017, although revenue ticked down sequentially and operating income was negative for the period ending Dec. 31, 2017. Operating income returned to the positive column on an uptick in revenue for the first quarter of 2018. Investing in this stock would be done on the basis of expecting a resurgence in coal prices and further easing of regulations on the coal industry. Cloud Peak's market cap is $164.438 million, making it the smallest company on our list. It does not pay a dividend at this time. (For more, see: Coal Firms Plead to Courts, Trump for West Coast Export Terminals.)
Average Volume: 570,282
Market Cap: $164.438 million
P/E Ratio (TTM): N/A
EPS (TTM): -$0.23
Dividend and Yield: N/A (N/A)
BHP Billiton Limited (BHP)
BHP Billiton is a major miner of copper, iron and coal. It also works in the areas of silver, lead, zinc, uranium and gold. The advantage with this stock is that it does not rely exclusively on coal, so it is less likely to suffer if the coal market takes a downturn. In other words, this is not a pure coal play, but it offers the protection of a diversified product portfolio.
BHP Billiton stock began rising in late June 2017, and after some volatility, it posted strong gains into year end. After the share price fluctuated along with the overall markets in the first half of 2018, the 50-day moving average remains above the 200-day moving average, which indicates that the stock may have some upside potential. After some significant ups and downs, the stock is now trading near the level at which it started the year.
Revenues, gross profit and operating income have been dropping for the past three years. On April 5, 2017, BHP Billiton declared force majeure for its Australian operations, meaning it could not fulfill contracts because the railways were inoperable due to a tropical cyclone. A six-week strike at the company's Escondida plant also hurt production. However, BHP Billiton has extensive holdings across Australia, the Gulf of Mexico, and Trinidad and Tobago. The likelihood of any single event causing the company serious harm is very low, and BHP Billiton is achieving increased production across many of its major products in 2018. The company has a market capitalization of $124.489 billion. (See also: Beyond Gold: Top Picks in Industrial Metals.)
Average Volume: 2,266,833
Market Cap: $124.489 billion
P/E Ratio (TTM): 32.76
EPS (TTM): $1.39
Dividend and Yield: $2.52 (5.59%)
Rio Tinto plc (RIO)
Rio Tinto is another company that mines other mineral resources besides coal. Its coal mines serve both the thermal (heating) and metallurgical (steel-making) industries. Like BHP, the diversity of products helps protect Rio Tinto from fluctuations in coal prices. The company explores worldwide for minerals and metals. It also processes aluminum, copper, diamonds, gold, iron and uranium.
The stock price dropped significantly in mid-February 2017, but after reaching a low in June, it began moving in an uptrend. Similar to its peers, Rio Tinto posted strong gains into the beginning of 2018 but then declined along with the broader market. The stock reached another peak at over $60 per share in early June 2018 before suffering sharp declines to current levels of $47.45. With the recent sell-off, the 50-day moving average crossed below the 200-day moving average, suggesting that there could be more downside ahead for the shares.
However, for investors seeking longevity, it is important to note that Rio Tinto dates back to 1873. Although it is based in London, the company has announced a major project in Western Australia that will create more than 1,000 jobs. Its Silvergrass iron ore mine in that region also saw increasing activity in 2017. In April 2017, Rio Tinto learned that the Australian Taxation Office determined that the company owes an additional $447 million for the years 2010 to 2013. The company has disputed the amount. Rio Tinto is also subject to allegations in the U.S. from the Securities and Exchange Commission (SEC) regarding inadequate accounting and reporting procedures. (See also: SEC Charges Rio Tinto With Fraud.)
Average Volume: 3,092,203
Market Cap: $79.481 billion
P/E Ratio (TTM): 8.54
EPS (TTM): $5.55
Dividend and Yield: $2.54 (5.38%)
South32 Limited (SOUHY)
Previously called BHP Coal Holdings, South32 was a part of BHP but now operates independently. The company mines other products besides coal, but it does provide coal to both the thermal coal and metallurgical coal industries. The stock began a steady uptrend in mid-2016, but it entered a sideways price consolidation in 2017. It broke upward out of that base in July, and after a strong performance in December and significant volatility along with the broader market so far in 2018, the stock looks like it has some additional upside potential.
This company operates in Australia, South America and South Africa. It produces aluminum, coal, manganese, silver, lead and zinc. South 32 currently has a market cap of $14.092 billion. Average daily volume is only 47,393, so this stock may not be as liquid as larger stocks. (For more, see: Understanding Liquidity Risk.)
Average Volume: 47,393
Market Cap: $14.092 billion
P/E Ratio (TTM): 10.72
EPS (TTM): $1.27
Dividend and Yield: $0.62 (4.70%)
The Bottom Line
No one is excited about coal, so this is a sector that may be overlooked. However, these four stocks could do well in the final months of 2018. When following these companies, it is important to monitor not only coal, but also the other minerals that the companies work with. Since these companies are not pure coal miners, checking the price of a basket of minerals could serve better than simply checking coal pricing.
In addition, investors should continue to monitor quarterly reports to see if any downtrend occurs in revenues or operating income. If a slip in those figures does develop, this could be an indication that the stocks are about to move downward. (See also: A Primer on Coal.)
Read more: Top 4 Coal-Mining Stocks as of September 2018 | Investopedia https://www.investopedia.com/investing/coal-stocks/#ixzz5SPmyXBBN
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