Money Matters - Simplified

4-Star Stocks Poised to Pop: Patriot Coal

Based on the aggregated intelligence of 165,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, Patriot Coal (NYSE: PCX) has earned a respected four-star ranking.

With that in mind, let's take a closer look at Patriot Coal's business and see what CAPS investors are saying about the stock right now.

Patriot Coal facts

Headquarters

St. Louis

Market Cap

$1.03 billion

Industry

Coal and consumable fuels

Trailing-12-Month Revenue

$2.02 billion

Management

CEO Richard Whiting

CFO Mark Schroeder

Trailing-12-Month Return on Equity

5.6%

Compound Annual Revenue Growth (Over Past 3 Years)

23.4%

Cash/Debt

$239.2 million / $453.2 million

Competitors

Peabody Energy (NYSE: BTU)

Massey Energy (NYSE: MEE)

Arch Coal (NYSE: ACI)

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 95% of the 838 members who have rated Patriot Coal believe the stock will outperform the S&P 500 going forward. These bulls include 4everlost and All-Star TSIF, who is ranked in the top 1% of our community.

Two months ago, 4everlost tapped the stock as a tempting turnaround situation:

Like most of the other Fools that recently added [Patriot] to their outperform list I think that they have been unduly punished. I really like companies that are oversold in must have industry sectors (IMO demand for coal is going to increase over the next 5 years). ... There could even be a "flight to energy" in the short term.

Ever since Patriot Coal announced the closure of its Harris mine in West Virginia due to a collapsing roof, the company's shares have been trapped in all the wreckage. Over the past three months, Patriot Coal is down more than 30%, while rising coal prices have fueled positive gains in rival producers like Peabody, Arch, and International Coal over the same period. Even Massey, which recently took a $130 million pre-tax charge related to its Upper Big Branch accident, has seen some solid share price recovery of late.

However, for real value junkies, CAPS All-Star TSIF explains why Patriot seems like a genuine find:

With mining permits more difficult to obtain the concerns are that while Patriot Coal has 14 mines, they will be hard to replace as they go offline. ...

The valuation to Patriot's Stock then is a combination of long term and short term effects. The [Harris mine] represents less than 2% of Patriot Coals annual production, (33-35 Million tons). ...

The dip of 20% is probably a bit excessive and the valuation of Patriot before the closure potentially on the low end due to the May correction the market suffered. Asia, China, in particular seems to be maintaining a growth trajectory, although the curve may be shallow. Patriot should rebound back to the $14.80 to $15.30 range and then track with its peers, hopefully in an upward direction. ...

Although a small percent of sales, the metallurgical coal is an important part of Patriots valuation as the demand in China is expected to grow.

© 2010 UCLICK L.L.C.