Demand for coal, both the thermal variety used for generating electricity and the metallurgical coal used in steel making, declined in 2011 as coal-fired plants have been shut down in favor of gas-fired plants and demand for steel has dropped.

In the US, gas-fired plants account for about 39% of total generation capacity, but these plants have traditionally been used to meet demand spikes because natural gas was more expensive than coal. With gas prices so low (about $2.49/thousand cubic feet today), coal miners have to lower prices or reduce production or both.

A quick look at coal mining companies’ valuations is enlightening.

Alpha’s share price at around noon today is $23.19 in a 52-week range of $15.49-$61.66. The consensus target price on the stock is $29.50, for a potential upside of 27%.

Patriot’s share price is $9.19 in a 52-week range of $6.92-$27.56. The consensus price target on the stock is $11.50, for a potential upside of 25%.

Peabody’s share price is $38.38 in a 52-week range of $30.60-$73.95. The consensus price target for the stock is $49, for a potential gain of about 28%.

Consol’s share price today is $37.34 in a 52-week range of $30.56-$56.32. The consensus price target is $50, for a potential upside of 34%.

Arch Coal’s share price is $15.39 in a 52-week range of $13.09-$36.99. The consensus price target is $22, for a potential upside of about 43%.

Market Vectors Coal ETF (NYSE: KOL) is down 0.4% at $37.17 and is 52-week trading range is $27.42 to $51.87.

Share price highs for all the coal miners is down by -24% to -64%, with Consol down the least and Patriot down the most. Our pick from among these would have to be Peabody, primarily for its strength overseas. The others are either closing shafts or soon will be.

The boom in shale gas production not only weighs down natural gas prices, but will continue to weigh on coal prices. About the only thing that can help here, is lower natural gas production, and that may be starting to happen.

Paul Ausick

Arch Coal, Inc. (NYSE: ACI) named as Bear of the Day with a $13.00 price target at Zacks.
American Tower Corporation (NYSE: AMT) Started as Outperform at Macquarie.
Berkshire Hathaway Inc. (NYSE: BRK.B) named as Bull of the Day with a $91.00 price target at Zacks.
Cliffs Natural Resources Inc. (NYSE: CLF) Raised to Outperform at Credit Suisse.
Crown Castle International Corporation (NYSE: CCI) Started as Outperform at Macquarie.
Deere & Company (NYSE: DE) named as value stock of the day at Zacks.
Domino’s Pizza, Inc. (NYSE: DPZ) Started as Hold at KeyBanc.
Guess? Inc. (NYSE: GES) Cut to Neutral at Citigroup.
Lowe’s Companies Inc. (NYSE: LOW) Raised to Buy at Goldman Sachs.
Lululemon Athletica Inc. (NASDAQ: LULU) Raised to Buy at KeyBanc.
Sina Corporation (NASDAQ: SINA) Raised to Buy at Deutsche Bank
Smith & Nephew plc (NYSE: SNN) Raised to Overweight at Morgan Stanley.
Western Refining Inc. (NYSE: WNR) Raised to Outperform at Credit Suisse.

Argus made changes to its institutional model portfolio: added shares of Walgreen Co. (NYSE: WAG) and sold out of shares of Sun Life Financial Inc. (NYSE: SLF).

Credit Suisse is out positive on generics saying that the news flow on generic Lipitor has obscured the bigger picture on Watson Pharmaceuticals, Inc. (NYSE: WPI) and Teva Pharmaceutical Industries Limited (NASDAQ: TEVA). The firm recommends buying WPI after its recent weakness as strong fundamentals just got cheaper.  It also recommends buying TEVA for the longer term and as a turnaround story for 2012.

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JON C. OGG

Met coal currently commands a contract price of about $285/metric ton. The spot price for Australian met coal is around $250/metric ton, a -20% drop in just three months. That indicates that the contract price will fall as well, and probably below the spot price. Platt’s has quoted a broker who has projected prices of $235/metric ton in the first quarter of 2012, falling to $205/metric ton by the end of the year.

The lower pricing is the result of an anticipated slowdown in the global economy, particularly in China which has experienced a construction boom in the past few years. But tighter government restrictions on lending and an over-supply of vacant buildings have resulted in fewer construction projects.

Still, there remains speculation that other coal companies may be takeover targets. We noted a rumor in early September that British miner Anglo American PLC (OTC: AAUKY) may be preparing a bid for Walter Energy. Last week, BHP Billiton plc (NYSE: BHP) was said to be considering a $6 billion offer for Walter Energy, with Brazilian giant Vale SA (NYSE: VALE) also included in the mix.

Like many commodities stocks, Walter Energy’s share price plunge in early August, and posted a 52-week low of $57.62. Shares have recovered to over $75, but that’s still about 50% off the stock’s 52-week high. If a takeover offer is coming, now is probably a good time.

US miner Patriot Coal Corp. (NYSE: PCX) has been boosting its production of met coal, and the company has said it sees strong demand for the steel-making coal continuing from Brazil and India. Patriot’s share price is about 67% below its 52-week high, making it another possible takeover target now that it’s market cap has fallen below $1 billion.

Peabody’s shares were up more than 3% at this morning’s opening, at $39.39, in a 52-week range of $30.60-$73.95. ArcelorMittal’s shares were also up more than 3%, at $18.72, in a 52-week range of $14.77-$38.88. The Market Vectors Coal ETF (NYSE: KOL) is unchanged, at $35.14, in a 52-week range of $27.42-$51.87.

The elephant in the room that no one wants to acknowledge is that if the stronger coal players are using the recent weakness to acquire the weaker players, perhaps these companies are positioning themselves better for the next decade and beyond.  Coal demand is a often considered as a leading indicator because it is still used as a key measurement for power consumption and for building infrastructure equipment and structures.  As with many businesses in and around commodities, getting better scale and better geography can incrementally lower costs and that drives higher margins.   Coal players seem to be positioning themselves for far beyond the next few years.

Paul Ausick

Which U.S. industries and companies stand to get hit the hardest in the event a trade war gets started? The U.S. Census Bureau provides data on the dollar amounts of U.S. imports from and exports to China that we have looked at to see where the impacts could be the largest.

According the Census Bureau data, in 2010 the U.S. imported goods from China worth about $365 billion, while exporting goods worth about $92 billion. If the U.S. were to implement tariffs on imports, the likeliest targets would be the goods with the largest dollar value. These imports include computer, semiconductors and telecom gear worth about $88 billion in 2010, clothing and other household goods worth an aggregate of about $71 billion, toys and similar items worth about $27 billion, televisions and other video equipment worth about $15 billion.

If all that sounds like the stuff you can buy at Wal-Mart Stores (NYSE: WMT) or Target (NYSE: TGT) or any number of other U.S. department stores, then be prepared to pay more for these items. Because comparatively little clothing or TVs or toys are manufactured in the U.S. any longer, an import duty on these items would hurt U.S. consumers without providing a lot of help to U.S. manufacturers. Hopes that a new manufacturing segment might spring up are not likely to be realized among large companies but smaller manufacturers could gain some benefit.

However, if China responds with import tariffs of its own, several major U.S. industries could get seriously hurt. Raw materials exports such as coal, copper, iron ore, lumber, and other metals are particularly vulnerable. So are agricultural products like soybeans, cotton, and corn. Industrial and agricultural machinery exports could also face penalties. Another substantial U.S. export is automobiles.

Coal miners like Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI) could get hit, as could copper miners Freeport-McMoran Copper & Gold (NYSE: FCX) and Rio Tinto (NYSE: RIO). Lumber companies Weyerhaeuser (NYSE: WY) and Plum Creek Timber (NYSE: PCL) could face higher duties on log exports.

Agricultural products companies such as Archer Daniels Midland (NYSE: ADM) and Bunge (NYSE: BG) could be in China’s sights if duties are applied to food exports. Caterpillar (NYSE: CAT) and Deere & Co. (NYSE: DE) are likely to see prices for their equipment rise with a concomitant loss of sales to competitors from Japan and Korea.

General Motors (NYSE: GM) and Ford Motor (NYSE: F) both look to China as a growth opportunity. In 2010 U.S. car sales in China totaled more than $3 billion. Slapping a tariff on U.S. cars could really chill the hopes of the U.S. automakers. General Electric (NYSE: GE) could also face tariffs on industrial engines and parts, as well as aircraft parts and other equipment.

China has been fighting inflation for most of this year by restricting bank lending and raising interest rates. Absent a significant currency adjustment, this does little good for the global economy and not much long-term good for China’s domestic economy. If the yuan were allowed to float freely, it could appreciate by as much as 30%. That would quickly eliminate the inflation threat in China, bringing the cost of the country’s goods more into line with foreign costs, slowing the country’s exports, and giving other economies a chance to fill the gap and begin growing again.

But that outcome does not appear likely. Instead, China appears willing to fight the Senate legislation with a trade war. The war of words is likely to last well into next year, but the first real shot is already being primed.

Paul Ausick

In addition to its struggles with a weak economy, the coal industry is almost continuously fighting rear-guard battles against environmentalists and regulators. The industry, or at least some of its players, have earned the scrutiny following deadly mine explosions and for continuing the widely denounced mining practice known as mountaintop removal. The US Environmental Protection Agency tried to rein in mountaintop removal mining by invoking provisions in the Clean Water Act. In a court ruling yesterday, the industry won a victory over the EPA when the judge ruled that the agency had exceeded its enforcement authority by failing to go through the formal rulemaking process before promulgating the restrictions on mountaintop removal.

The suit was filed by the National Mining Association, an mining industry group that includes large coal miners like Arch Coal Inc. (NYSE: ACI), Alpha Natural Resources Inc. (NYSE: ANR), Peabody Energy Corp. (NYSE: BTU), Cliffs Natural Resources Inc. (NYSE: CLF), Consol Energy Inc. (NYSE: CNX), and Patriot Coal Corp. (NYSE: PCX). The court ruling is expected to remove restrictions on more than 70 mining permits that were holding up projects in Appalachia.

The EPA pointed out that the ruling is a procedural issue and that it does not affect the agency’s authority under the Clean Water Act. In fact, the EPA released in July its final guidance which replaced the interim guidance that the court ruled on yesterday.

This issue still has some time to go before it is finally played out, and coal miners will continue to struggle, but not because they can’t keep knocking the tops off Appalachian mountains. On Monday, Arch Coal revised its outlook for the 2011 fiscal year from EPS of $1.75-$2.15 to $1.00-$1.40. The company has lost production of metallurgical coal at one of its mines following a roof collapse. Several other miners have had similar problems producing the high-priced coal and that is sending mining companies back to Appalachian mines.

Typically, when production of coal is disrupted, the price of coal rises. That’s not happening this time as Australian shipments of coal are fast making up for the disruption to production following last year’s floods. And then there’s the overall weak economy, which cuts demand for energy even more.

Over the past year, all seven of the companies mentioned here have seen share prices drop from around -5% (Consol) to nearly -60% (Alpha). Whether the coal mining stocks are currently a great value or a looming value trap depends more the pace of recovery in the world’s economy than on winning a pyrrhic victory over the EPA. And today’s share price declines bear that out.

Shares of Arch Coal are down more than -2% at around noon today, at $15.44, in a 52-week range of $13.09-$36.99. Alpha’s shares are off -3.5%, at $18.49, in a 52-week range of $15.49-$68.05. Patriot shares are off more than -7.5%, at $9.28, in a 52-week range of $6.92-$29.20. The Market Vectors Coal ETF (NYSE: KOL) is up 0.3%, at $32.03, in a 52-week range of $27.42-$51.87.

Paul Ausick

Alpha Natural Resources has cut its 2011 coal shipment targets down to 102.5 to 109.5 million tons from a prior range of 104 to 112 million tons. Lower metallurgical coal exports to Asia are forcing it to cut production at some of its domestic coal mines.  The company is also reviewing its 2012 estimates as well with global market conditions and it will adjust the 2012 at its next earnings report.

Walter Energy’s lower guidance is due to adverse weather conditions at its Alabama mining site and in its northeast British Columbia site.  Walter now sees earnings of $1.00 to $1.16 EPS for the current quarter and sees $2.63 to $2.95 EPS next quarter.  Thomson Reuters had estimates of $3.23 EPS this quarter and $3.16 EPS next quarter.  Metallurgical coal sales guidance was cut for the second half of 2011 to 5.2 million metric tonnes from a prior target of 5.9 million metric tonnes.

Patriot Coal Corporation (NYSE: PCX), Arch Coal Inc. (NYSE: ACI), and James River Coal Co. (NASDAQ: JRCC) are all getting hit hard: Patriot is down 6.5% at $10.66 and the new 52-week range is $10.35 to $29.20; Arch Coal is down 6.4% at $16.85 and the new 52-week trading range is $16.70 to $36.99; James River is down 5.6% at $8,55 and the new 52-week range is $8.48 to $27.06.  Alpha is down over 7% at $25.07 and the new 52-week range is $23.90 to $68.05 with that low being seen today.  Walter is down over 10% at $66.93 and the new 52-week range is $63.88 to $143.76.

Oddly enough, Yanzhou Coal Mining Co. Ltd. (NYSE: YZC), a steam coal and metallurgical coal player in China, is only down 1.2% at $25.37 and the 52-week trading range is $21.70 to $41.89.

The Market Vectors Coal ETF (NYSE: KOL) is also down ‘only’ 2.4% at $35.88 and its 52-week trading range is $35.73 to $51.87.

Weather is one thing, but a slowing demand out of Asia is another issue.  The world is hoping that growth in Asia can remain high enough that the U.S. and Europe can still avoid a recession or that they can limit the impact of a new recession.  Too much time has passed for there to be a true double-dip recession, but a new poll suggests that 80% of America feels like the recession never even ended.

In copper, a leading indicator, Freeport-McMoRan Copper & Gold Inc. (NYSE: FCX), also suffering from a strike in Indonesia, is down 6.2% at $36.14 and its new 52-week range is $36.12 to $61.35.  It almost seems odd that the iPath DJ-UBS Copper TR Sub-Index ETN (NYSE: JJC) is up 0.6% at $48.38 on the day.

JON C. OGG

Active Power Inc. (NASDAQ: ACPW) Started as Buy at Merriman.
Applied Materials, Inc. (NASDAQ: AMAT) Cut to Underperform as Bear of the Day at Zacks.
Arch Coal Inc. (NYSE: ACI) Raised to Outperform at BMO.
Barclays PLC (NYSE: BCS) Raised to Buy at UBS.
Brightpoint Inc. (NASDAQ: CELL) Raised to Buy at Citigroup.
Cabot Oil & Gas (NYSE: COG) named Bull of the Day at Zacks.
Duke Energy Corporation (NYSE: DUK) Raised to Sector Perform at RBC.
HCA Inc. (NYSE: HCA) Started as Buy at Auriga.
Medtronic, Inc. (NYSE: MDT) Raised to Hold at Argus.
OM Group, Inc. (NYSE: OMG) named Value stock of the day at Zacks.
Portugal Telecom SGPS SA (NYSE: PT) Started as Neutral at Credit Suisse.

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JON C. OGG

Forward PE multiples range from 6.7 to almost 12 and the return on equity (ROE) is as low as 3.6% to as high as 18.5%.  Five of these companies boast ROE’s greater than 8.5%.  Analysts estimate next year’s earnings will range from a 15% year-over-year increase to an increase of about 60%.  Most of these companies are expected to post an increase in next year’s earnings above 30%. Consensus target prices from analysts indicate that each of these have above-market upside from Thomson Reuters, with most looking to be above 20%.  Most of these companies also show a price to book ratio of 2.4 to 1 or lower.  Except where otherwise noted our source for all financial and performance data is Finviz.

Alcoa, Inc. (NYSE: AA) is the largest of these companies with a market cap of $17.3 billion.  This is also one of our freshly featured “Top Stocks That Will Set Market Trends For This Summer” as it leads off in earnings season this coming week.  Its price to book ratio is 1.17 to 1, best of the lot.  With a consensus target price of $19.67 the shares have an implied greater than 20%.  Alcoa shares recently traded at $16.49 and its 52-week trading range is $9.86 to $18.44.  We do not expect this to occur, but we do have to admit that this was considered a loose takeover candidate in the recent past.  It also hit $40.00 before the recession.  Alcoa offers a very unexciting dividend of about 0.7%.

Arch Coal Inc. (NYSE: ACI) may seem an odd fit in our base metals screen, but that is because of its metallurgical coal operations that feed the steel industry.  Technically it does actually lead the rest of our screened companies in three of our financial measures: forward P/E, analysts’ implied price upside, and analysts’ estimated earnings growth.  The reason or explanation may simply be because many estimates have not properly adjusted since its International Coal acquisition.  Our review was on a standalone basis and we always want to point out that estimates and projections can often lag by a quarter when M&A is in the mix.  The company’s forward price to earnings multiple is less than 7 as analysts see next year’s earnings growth of about 60%.  Again, consider the merger.  With a consensus target price of $39.28, the shares have an implied upside of more than 40%.  Arch Coal shares recently traded at $27.34 and its 52-week price range is $19.03 to $36.86.  After the acquisition was completed, S&P affirned a “BB-” corporate credit rating.

Century Aluminum Co. (NASDAQ: CENX) is second best among these companies with a low price to book ratio of 1.26 to 1.  It also trades at less than 9-times 2012 projected earnings from Thomson Reuters consensus data.  Unfortunately, Century is stingy when it comes to dividends.  Its $1.48 billion market cap makes Century the smallest of these companies.  Its consensus target price of $19.75 implies an upside greater than 24%.  The company’s shares recently traded at $15.87 and the 52-week trading range is $8.57 to $20.76.

Nucor Corporation (NYSE: NUE) has a market cap of $13 billion making it the second largest company in this lot.  The manufacturing and sales company of steel and steel products actually has an unimpressive 3.6% return on equity (ROE) per the Finviz screen, which, if entirely accurate, screened out as the lowest among these companies.  It also pays a 3.6% dividend yield.  With a consensus target price of $50.38, the shares still have an implied upside of 23%.  Nucor shares recently traded at $40.82.  The 52-week price range is $34.48 to $48.40.  While it trades at 15.6-times 2011 earnings estimates, the multiple drops down to under 11-times the 2012 earnings estimates.

Steel Dynamics Inc. (NASDAQ: STLD) is in an interesting place since it recently gave earnings and offered guidance which was technically a bit light.  Still, shares have recovered about 10% since its report and it seems that the valuations may be a part of the “why” that recovery has been seen.  The steel products operator has a price to book ratio of 1.62 to 1, third best among these companies.  With a consensus target price of $21.83, the shares have an implied upside of 34%.  That is actually the second highest among these companies. Shares of Steel Dynamics recently traded at $16.25.  The 52-week price range is $12.92 to $20.45. Steel Dynamics also pays a 2.5% dividend yield.

Worthington Industries, Inc. (NYSE: WOR) is one of the smaller companies with a market cap of just under $1.7 billion.  It also leads these companies with a 16.4% return on equity (ROE).  It also trades at about 13-times next year’s projected earnings.  With a consensus target price of $26 the shares of this metals processor have an implied upside of 12% to the consensus price target.  Worthington shares recently traded at $23.22.  The 52-week price range is $12.00 to $23.75.  Worthington’s dividend yield measures today at about 2.1%.

Having the term “value” does not imply immediate gains nor does it imply that there are no risks.  The market has also just recently enjoyed a great bounce.  When it comes to M&A and it when it comes to long-term investing it is the value segment that often outperforms the market and which can hold up better if and when the markets head south again. Earnings season is about to be underway and many of these figures may change in the coming weeks.

JON C. OGG

Alcatel-Lucent (NYSE: ALU) Raised to Buy at UBS.
Arch Coal Inc. (NYSE: ACI) Started as Buy at Soc-Gen.
Celestica Inc. (NYSE: CLS) Raised to Buy at Deutsche Bank.
eBay Inc. (NASDAQ: EBAY) Raised to Buy at BofA/ML.
First Solar Inc. (NASDAQ: FSLR) Maintained Neutral but raised target to $135 from $100 at Credit Suisse.
Hess Corporation (NYSE: HES) Raised to Buy at BofA/ML.
Hudson City Bancorp (NASDAQ: HCBK) Cut to Underperform as Bear of the Day at Zacks.
KB Home (NYSE: KBH) Raised to Hold at S&P Equity Research (late-Wednesday call).
Lululemon Athletica Inc. (NASDAQ: LULU) Cut to Neutral at Stern Agee.
PerkinElmer, Inc. (NYSE: PKI) Raised to Outperform as Bull of the Day at Zacks.
Renren Inc. (NYSE: RENN) Started as Outperform at Credit Suisse.
Tanger Factory Outlet Centers Inc. (NYSE: SKT) Started as Outperform at Credit Suisse.

You are invited to join our free daily email distribution list to hear more about analyst upgrades and downgrades, top day trader and active trader alerts, dividend trends, news on Buffett and other investment gurus, IPOs, secondary offerings, private equity, and more.

JON C. OGG

While most “book value” companies are trading at discounts for a reason, we only focused on the basic materials players which may actually grow through these uncertain times.  Each company offers an implied earnings growth scenario.  For next year, analysts expect healthy earnings growth ranging from Alcoa’s 14% to Arch Coal’s 56%.  We also only took companies that have lower price-to-earnings ratios ahead as well to filter out the companies in trouble.  Average trading volume for each of these companies exceeds one million shares daily.

We would also note that each of these shares is currently lower than the prior day’s close due to the global selling that has been seen.  That changes things only marginally, and value investors may get to see yet even more value as a result.  Except where otherwise noted, the source for all performance and financial data is Finviz.com.

Alcoa, Inc. (NYSE: AA) boasts a price to book value of roughly 1.1, clearly best among this list of companies.  Its market cap is $16.4 billion.  Its forward P/E is 9.6.  Analysts look for next year’s earnings to top current year net by 14%. With a Thomson Reuters consensus target price of $19.95 per share, Alcoa has an implied upside of close to 30%.  In trading Wednesday, Alcoa’s shares closed at $15.29, down 0.52%.  The 52-week trading range is $9.73 to $18.44.

Here is what investors need to consider about Alcoa.  Investors always try to use this company as the first read each earnings season to make a determination about companies in general but they also use it to analyze the entire metals sector.  Alcoa has telegraphed growth and recovery ahead, even if it has a spotty record around earnings.  Alcoa has also been called a takeover target by some investment watchers. Alcoa peaked around $45.00 back in 2007 before the recession.

Arch Coal, Inc. (NYSE: ACI) is tricky because it recently closed upon its acquisition of International Coal.  That throws a wrench in the machine, but we still wanted to show what the core company value is.  Arch sports a price to book ratio of roughly 1.9 and its market cap is $5.5 billion.  Its forward PE is less than 7, ranking it the best in this list of companies.  Analysts expect next year’s earnings to exceed current year earnings by more than 55%, the best expected earnings expansion among these six companies. Again, keep in mind that analysts often are extremely late to the party when it comes to interpolating other earnings into a merger mix.

With a Thomson Reuters consensus target price of $39.76, Arch Coal has an implied upside of more than 50%.  In Wednesday trading, Arch Coal’s shares closed at $25.84, down 0.69%. The 52-week price range is $18.81 to $36.86.  The merger will undoubtedly change the values and the outlook ahead and it is possible that the value here may change since the aggregate value of the merger was about $3.4 billion.  We still wanted to show this as the cheap buyer.