NEW YORK ( TheStreet) -- In November, I marveled at the across-the-board cheap valuations of coal stocks. These companies were cheap for a reason, including Cloud Peak Energy (CLD - Get Report), which (in November) fell below its reported book value.
Since that article, Cloud Peak's stock price's course has seen no valleys, which pretty much affirms my belief that the only way to consistently make money in commodity-driven industries is to swim against the current. While pundits were beating the drum on TV and print about what a poor industry coal was, Cloud Peak investors took advantage.
Truth be told, I've had my doubts. It's true there are some positive signs that the industry is beginning to rebound. It's still an open question as to whether Cloud Peak is better positioned than Arch Coal (ACI) or Alpha Natural Resources (ANR) to fully capitalize on the rebound.
While I was more than willing to give management the benefit of the doubt that it had done enough to address legitimate operating challenges, there is plenty to prevent me from buying this stock. For instance, last year the company sold roughly 4 million tons of 2013 coal production for less than $10 per ton.The Street didn't seem to mind; management now had near-term liquidity for other maneuvering. But I didn't believe it made sense to sell such a high volume below cost. Although the company ended up with some cash, they lost money given that cost per ton was going for more than $10 at the time. In the very next quarter, pundits seemed stunned that the company's earnings-per-share declined 60% year-over-year, while product margins and average cost of coal (per ton) fell 21% and 10%, respectively. Essentially, management got some near-term capital relief in June, only to see the stock/investors pay the price four months later because it missed out on a narrower-than-expected loss.