ARCH - Coal Isn't Going Anywhere And Arch Resources Is A Great Cash Cow
2024-02-15 14:16:10 ET
Summary
- Arch Resources is a good investment due to low coal stock multiples and high FCF yields.
- The company has recently underperformed its peer, Alpha Metallurgical Resources, but this is likely to change in the future thanks to a stronger stock buyback program.
- Asian demand in the upcoming decade will keep coal prices strong and Arch's FCF generation healthy.
Investment Thesis
Arch Resources, Inc. ( ARCH ) makes for a good investment for two main reasons.
The first one is that coal stocks, in general, tend to trade at much lower multiples (and therefore, high FCF yields) than other sectors. That's because ESG either makes investors afraid of the sector - thinking it might disappear overnight - or quite literally makes it uninvestable by institutions who wish to keep the ESG label for their clients. That's the kind of edge I like as a private investor who isn't constrained by labels.
The second main reason is that Arch Resources has underperformed its peer, Alpha Metallurgical Resources, Inc. ( AMR ) in recent years....
Coal Isn't Going Anywhere, And Arch Resources Is A Great Cash Cow