In the seemingly endless saga that is the 2016 election, coal stocks have surprisingly emerged as the undisputed winner. There’s no need to pour over butterfly ballots — coal stocks have been kicking butt and taking names. Indeed, the only sector that can rival the industry is gold mining. That’s saying a lot considering the mind-boggling gains that precious metals have made this year.
The reversal of fortune couldn’t be more acute. Coal stocks were thrust into the limelight of the 2016 election cycle from the get go — and not in a good way. Democrat Hillary Clinton caused waves earlier this year at a rally promoting her clean-energy program.
Inexplicably, she stated, “We’re going to put a lot of coal miners and coal companies out of business.” The admission confirmed suspicions that a Clinton administration would mirror President Obama’s, who once vowed to “bankrupt” coal stocks.
Under ordinary circumstances, the only thing that would be bankrupted is the Clinton campaign. Unfortunately — or fortunately, depending on how you look at it — the 2016 election is unlike any other. This is the year of Teflon, where absolutely nothing sticks for long.
A large portion of that is due to Republican Donald Trump. The brash billionaire’s media controversies more than offset the missteps of Hillary Clinton. And even when Trump had the advantage — as he did regarding coal stocks — he was unable to pin Clinton down. She later clarified her remarks, and backed off from an aggressive posture against coal country.
But for coal stocks, the drama of the 2016 election was a double victory. First, “The Donald” came to the industry’s defense, and many swing-state voters responded in kind. That obviously generated plenty of positive publicity. Perhaps more significantly, the Democrats were unhorsed from their “holier-than-thou” clean energy initiatives. Coal stocks proved they weren’t going to go down without a bitter fight, garnering respect from an otherwise hostile crowd.
The effect is tangible. Several left-for-dead coal stocks are making a remarkable recovery. Even initial public offerings like Arch Coal Inc (OTCMKTS:ACIIQ) are steadily gaining. This is occurring despite the fact that their political champion in Trump is not doing well in the polls.
No matter what happens in the 2016 election, it finally looks like a good year for coal stocks!
Coal Stocks to Buy: Market Vectors-Coal ETF (KOL)
In a normal world, everyone should hate coal by now. After years of marketing — a safe word for indoctrination — clean and green has won the global consensus.
There are now more initiatives supporting efforts such as carbon footprint reduction than ever before. Coal, on the other hand, looks like a misfit tribute to an archaic era. Yet the benchmark exchange-traded fund for coal stocks, Market Vectors-Coal ETF (NYSEARCA:KOL), stands strong.
How strong? Year-to-date, KOL is up 100%. That’s absolutely nutty to think about, not just because of the 2016 election, but due to prior political seasons as well. With society shifting left on environmental issues, KOL really should have a snowball’s chance in hell. The ETF has failed to stem the bleeding that began in the second half of 2011. Over the trailing five years, KOL is down 65%.
But thanks to the 2016 election, coal stocks have had the opportunity to make a case for themselves. According to the American Coal Foundation, the U.S. produces approximately one billion tons of coal annually. That provides around 12% of global supply, and thus is a critical component of our economy. In addition, 40% of American electrical power is generated by coal.
With statistics like that, it would be unwise politically to alienate an entire industry. KOL, therefore, should have the legs to run higher.
Coal Stocks to Buy: CNX Coal Resources LP (CNXC)
The 2016 election has turned out to be a godsend for CNX Coal Resources LP (NYSE:CNXC). Almost immediately after its initial public offering last year, CNXC was hit with a thunderstorm of volatility. Between June of 2015 until late January, CNX Coal shares lost more than 54% of their value in the markets. Virtually everyone ran for the exits. Today, the company has made up for those losses, and then some.
On a year-to-date basis, CNXC is up a hair above 80%. Against its IPO price, the coal producer has returned 36%, rewarding investors who stuck it through. This is a lesson that the Republican establishment could stand to learn. All joking aside, coal stocks are breaking new ground, and CNX Coal is a perfect example. This isn’t just a one-off burst of enthusiasm. The technical trend line is as sharp as it is bullish.
Whether that’s enough to convince new buyers to go on a long-haul ride is another story. The company’s balance sheet, as you might expect, is laden with debt. Top-line growth isn’t moving in the right direction. On the flip side, CNXC has one of the best profitability margins in the coal mining industry. Also, a 12% dividend yield will raise speculative eyebrows.
Certainly, coal stocks aren’t for everyone. However, CNX Coal has an intriguing mix of attributes that make it worth a second look.
Coal Stocks to Buy: Westmoreland Coal Company (WLB)
Have you ever researched an investment and not pulled the trigger, only to discover later that it launched skyward? Ever wish you could go back to correct the mistake?
Westmoreland Coal Company (NASDAQ:WLB) plays the role of a time machine for coal stocks. Like its competitors, WLB has been around for a few years, witnessing the sector’s volatility first-hand. The difference is that it hasn’t recovered as quickly as the others.
WLB is “only” up 51% YTD — yes, that’s a lot, but it happens to be on the lower end of the industry. Another aspect to note is its second-half performance. Since the beginning of July, Westmoreland is down 11%. In contrast, KOL is up 32%, while CNCX has gained a whopping 87%. Stacked against these numbers, WLB appears to be a relative bargain.
How it actually plays out, though, is a tough call. Ideally, you’d like to see an investment candidate move in accordance with its industry. WLB lags other coal stocks primarily because its financial health is comparatively weak. Red flags include negative margins and cash flow concerns. Also, it’s tough to sell a speculative stock without passive income to sweeten the deal.
Westmoreland is not a company that would be regularly recommended by Wall Street analysts. However, its major argument is that anything could happen — and this year, it certainly did!
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.