Alpha Natural Resources Is Worth the Gamble

Tickers in this article: ACI ANR 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 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 and Consol , 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.