Alpha Metallurgical Resources: China Should Drive Steel And Metallurgical Coal Prices Higher

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Alpha Metallurgical Resources is a leading metallurgical coal producer, with 70% of its coal sold internationally.The company has consistently outperformed the S&P 500, with a 2,225% increase in total...

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While buy and hold sounds simple, most individuals find keeping badly performing stocks in their portfolio difficult when markets or sectors crash, even though these selloffs often create the best opportunities. One of the most cyclical industries in the market is the steel industry. This sector frequently sees significant short-term run-ups and sell-offs, and the companies that sell commodities such as iron ore and metallurgical coal that go into steel production are also usually volatile as well. The largest metallurgical coal producer in the United States is Alpha Metallurgical Resources (NYSE:AMR). This leading metallurgical coal producer sells 70 percent of their coal internationally. AMR also produces thermal coal, but that is largely a by-product of the company's core business of producing metallurgical coal. The company is getting nearly ninety percent of the coal miner's revenues from the metallurgical coal industry. Data by YCharts Alpha Metallurgical Resources has consistently and significantly outperformed the S&P 500 (SPY) for some time. The coal producer is up 2,225% over the last decade as measured by total returns, while the S&P 500 is up 173% during this same time period. Today I am rating Alpha Metallurgical Resources a buy. Supply remains tight in the international metallurgical coal and steel market, this company is one of the best-run and lowest-cost producers in the industry, and Chinese demand should drive prices in this sector higher in the back half of the year for multiple reasons. AMR is one of the best-run companies in the coal industry, and this coal miner's leadership team has done a very good job of managing costs and using share buyback to strategically leverage the corporation's balance sheet at the right times. Data by YCharts Alpha Metallurgical Resources has also done a good job of both reducing and managing the company's debt, as well as using timely back buybacks as well. A chart of AMR's debt (companiesmarketcap.com) AMR has nearly completely eliminated the company's debt, and management has done a good job keeping the coal miner's margins high as well. The company should be able to focus more on share buybacks moving forward. A chart of AMR's net margins (Statista) The coal miner's net margins have also held up well at 20.80%, which is well above the five-year average levels of profitability for this company, and also much higher than the industry average of 5%. The Steel market should also be stronger in 2024 for multiple reasons. A chart showing expected steel demand in 2024 (AMR shareholder presentation) Global Steel demand is expected to rise this year as China begins to focus more again on the construction and real estate sectors. The world's second-largest economy recently announced they would be cutting key interest rates and easing lending conditions as well. Growth rates in China were slow last year, coming in at 5.2%, and the Chinese government clearly wants to use fiscal and monetary initiatives to stimulate the economy this year. The CCP also appears to be targeting the housing and construction markets. Chinese demand for iron and metallurgical coal has been strong this year, with the country's coal imports up nearly 61% on a year-to-year basis, and iron ore imports up nearly 7%. This is also why Alpha Metallurgical Resources looks undervalued at current prices. The company currently trades at just 9.22x expected forward GAAP earnings and 5.56x forecasted forward EBITDA. The sector median valuation is 17.97x predicted forward GAAP earnings, and 8.61x expected forward EBITDA. Even though the company's 5-year average valuation is 3.15x predicted forward EBITDA, AMR has a very strong balance sheet with nearly $20 a share and cash almost no debt. The Steel market is expected to be strong this year too.  AMR is coming off 2 straight strong years, but the stock has pulled back nearly 25% over the last several months, and the company remains very well positioned for what should be a strong 2024. The coal miner's management team has also been very good at leveraging the strong balance sheet, and the leaders of this company should have opportunities to maximize shareholder returns again this year.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2424422737"}