MINNEAPOLIS (Stockpickr) -- One of my top-performing picks from last year was Patriot Coal (PCX). This mid-size U.S.-based coal operation gained 25% in 2010. Impressive as that may be, the stock did not really gain any steam until the last three months or so of trading. In fact, shares had been in negative territory when that explosive rally began in September.The gains for Patriot in recent months mirror the gains for the sector. From September to the end of 2010, Patriot shares approximately doubled in value and kept on going right through the first month of 2011. After peaking at $29 per share, Patriot took a step back on Feb. 3 after it was announced that its largest stakeholder, Arclight Capital, had liquidated its 12% position in the company. In addition to the action in Patriot Coal, the sector received another piece of news with the announcement that Alpha Natural Resources ( ANR) was buying troubled mining operator Massey Energy ( MEE). The $7 billion deal allowed Alpha Natural to surpass bidding from other players, possibly including Arch Coal ( ACI) and Arcelor Mittal ( MT), and represented a 21% premium over current market prices. Related: 3 Gun Stocks: Buy, Sell or Hold? The deal changes the landscape somewhat in the coal industry. Alpha now becomes a bigger player in the industry, including a one-third control over the U.S metallurgical coal business. This may or may not be enough power to attract the attention of antitrust regulators. At a minimum, the industry is in somewhat of a hyper-state of activity. Stocks are exploding higher, deals are generating premium offers, and the global economy is growing. Add in inflation concerns and you have the recipe for stocks that seem to be moving in only one direction: higher. Of course, no stock moves higher in perpetuity. These things tend to move in cycles. Depending on your view, we could be at the beginning, middle or end of the current cycle. Ultimately, valuation is what should matter when evaluating coal stocks. Let's take a look at three names in the industry.
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