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Alpha Natural Resources Is Worth the Gamble

Stocks in this article: ANR ACI CNX

NEW YORK (TheStreet) -- Coming to terms with missing a great selling opportunity is a hard thing to do for many investors. It's usually at the point when you're asking yourself, "How much worse can things get?"

With losses of more than 65% since January 2012, Alpha Natural Resources (ANR) has been anything but a great stock. Investors who have put their faith in a revival in a coal industry -- which has suffered from low natural gas prices and weak steel production -- have no doubt placed the wrong bets.

But those who held true to their convictions (I won't say stubbornness) are feeling a little better today about their positions because ANR shares have finally bottomed.

Although the sector's coal misery, which has also hit rivals Arch Coal (ACI) and Consol (CNX), seem far from over, ANR shares have gained more than 50% since August to close Wednesday at $7.32.

But it's not because the risks associated with this debt-heavy company are suddenly gone. Rather, I believe the Street has finally decided ANR has taken enough punishment. It's not a glowing endorsement. But it's enough to satisfy the question that things won't get any worse -- at least, for now.

In sort of a counterintuitive way, the prevailing pessimism surrounding anything associated with metallurgical coal, which is used in making steel, actually helped ANR in its recent quarter. Basically, despite ANR posting year-over-year revenue declines of close to 30% to $1.19 billion, revenue was still able to beat estimates. That speaks to the low expectations the Street has for this company.

But the good news is that on a sequential basis, not only did coal revenue post a more respectable 8% decline, but ANR was able to increase overall tons of coal sold by 1%, which suggests there's moderate relief on the horizon. Don't, however, mistake this for an "all is clear" signal. There are still risks in this operation.

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