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This column was originally published on RealMoney on Oct. 20 at 10:59 a.m. EDT. It's being republished as a bonus for readers.

It's still somewhat hard to believe that traders are sitting around this week waiting on pins and needles for the earnings report of a coal miner. Strange as it may seem, coal producers have become the "it" stocks of 2005.

When formerly highflying oil and gas stocks were crushed early this month as fears of "demand destruction" trumped old fears of scarcity, the stocks of most coal miners sailed along unperturbed. Many of the big-caps are just a bit of black dust away from their all-time highs, as earnings reports in the group so far have been awesome.

In a tip of the cap to the city that lost its bid for a National League pennant, let's take a look at St. Louis-based miner

Arch Coal

(ACI) - Get Free Report

, which reports on Monday.

It has had an amazing journey over the past 10 years. From 1992 to 1998, while technology stocks were rocking, it range-traded between $21 and $30 -- just about as boring as you can imagine. And then Arch shares plunged 80% over a two-year period into total irrelevancy, hitting a low of $4.70 just as the

Nasdaq Composite

was peaking in mid-2000. At that point, investors suddenly caught the value religion and gave Arch a strong bid, pulling it to $38 by early 2001 before trashing it once more a year later.

Investors saved the best for last, though, as the stock broke to an all-time high at $39 late last year, and then kept pulling on the string, sending the stock on a gentle upward trajectory to its latest perch at $72 as coal became increasingly popular as an alternative to natural gas and oil.

Arch has become the nation's second-largest coal producer, focusing on clean-burning, low-sulphur rock that it sells to 120-plus power plants in 30-plus states, as well as to steelmakers both here and abroad. Most of it comes from 13 mining complexes in the Powder River Basin area of Wyoming, as well as West Virginia, Wyoming, Kentucky and Virginia. It has at least 3.7 billion tons of coal reserves under its thumb, and it sells more than 140 million tons a year.

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The company says it supplies 13% of all U.S. coal and provides fuel for 7% of the nation's electricity. The toughest bituminous stuff, called metallurgical coal, has the right physical makeup to be turned into coke, which is the solid carbon source of heat to smelt iron ore and create steel.

Over the past 12 months, Arch sold $2.3 billion worth of coal and earned $42.7 million. Net margins are low, at 1.8%, and so is the debt load, at 0.87% of equity. But naturally we are much more concerned about what's ahead.

At the risk of sounding like a coal-mining Pollyanna, the outlook continues to be strong: Powder River Basin coal has fetched increasingly higher prices this year, and metallurgical coal, in particular, is fetching record prices.

Input costs of things like diesel and labor are undoubtedly higher, too, but with inventories at record lows, contracts for 2006 and 2007 delivery continue to improve, at $20 a ton for the hottest-burning nonmetallurgical coal, while the best "met" coal comes in at $100 a ton. Jim Rollyson, an analyst at Raymond James, said he believes these prices "bode extremely well" for increasing earnings results over the next three to four years.

The key driver is demand for steel, and the rebuilding effort in New Orleans, Mississippi and the Gulf of Mexico appears to be helping. As steel demand and prices rise, so too will coal demand and prices. It's a virtuous cycle, as long as it lasts.

Friedman Billings analysts note that coal stocks, now near highs, should be volatile in the face of a softening economy and rising inflation. Yet Friedman said they should make good purchases on pullbacks, since, in fact, the sector is less sensitive to a weakening economy. Why? Subdued demand for energy would abate the industry's key costs while cutting down on the rail-transportation bottlenecks that now are a big affliction.

Most brokerages are rolling their 2006 target prices on Arch Coal forward to reflect 2007 estimates and multiples, and they're coming in at around $78 to $82. While consensus estimates for the September quarter are 29 cents, 94 cents for fiscal 2005, and $3.85 for 2006, the new thinking is that 2007 will come in around $5.50. Put a 13 times multiple on that and you get the target price.

Now here's something to worry about: The last two quarters, Arch has missed estimates by 2 to 3 cents. So you may wish to wait for another quarterly disappointment to buy into the long-term story. Figure on being able to pick up shares in the $63-$66 area after Monday's report.

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Jon Markman, writer of Value Investor, is the senior investment strategist and portfolio manager at Greenbook Investment Management, a division of Greenbook Financial Services. Separately, he is publisher of StockTactics Advisor, an independent weekly investment research service. While Markman cannot provide personalized investment advice or recommendations, he appreciates your feedback;

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