A recent article on this site reported on more negative news for the coal industry…which is certainly not in short supply as shown by the performance of coal stocks such as Peabody Energy (NYSE: BTU), Arch Coal (NYSE: ACI), and Alpha Natural Resources (NYSE: ANR)..
Another lump of bad news was just delivered. A study from the University of Texas reported in Time magazine found that water is saved when power plants switch from coal to natural gas. That means that fracking saves water, in the long run. That had always been a major reason for the environmental opposition to fracking.
This study adds to the appeal of natural gas rather than coal as a fuel source for power plants. There has already been a tremendous switch due to the cost and environmental impact. Natural gas will be even more attractive now with the study showing how much water can be saved.
For investors, the issue becomes are Peabody Energy, Arch Coal, Alpha Natural Resources, and other coal stocks ready to rebound.
There has been a surge in recent market activity. For the last week of trading, Arch Coal is up more than 7%. Over the same period, Alpha Natural Resources has risen more than 3%. Peabody Energy has surged more than 20% for the last six months.
All of those companies are very undervalued, based on sales and assets.
There are certainly concerns about Peabody Energy, Arch Coal, and Alpha Natural Resources being value traps. But the world is not going to stop using coal. It is the easiest fossil fuel to dig up, carry home, and burn. There will always be a demand for coal, which makes these companies appealing turnaround stocks.