Coal stocks have plunged since late July on the weak global economy, competition from cheap natural gas, and an increase in certain costs. But the drop may have gone too far, at least for some producers, writes Goldman Sachs analyst Andre Benjamin in a note today.
“Stocks appear to be discounting the majority of the tough fundamentals we now assume in our estimates, but we believe consensus is yet to fully reflect this,” he writes.
Benjamin considers diversified coal producers to be a better bet than metallurgical coal producers (met coal is used to make steel).
“Despite more attractive valuation, we expect met coal-levered stocks to continue to underperform. They have limited positive catalysts beyond improving operations already in our estimates. They are the most levered to falling prices and rising costs hurting met coal demand.”
Benjamin recommends investors buy Consol Energy (CNX) and Peabody Energy (BTU) but he downgraded Patriot Coal (PCX) to Sell from Neutral
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