Arch Coal Needs a Spark

Tickers in this article: ACI ANR BTU CLD
NEW YORK (TheStreet) -- "Timing the bottom" of an already depressed stock is virtually impossible, especially when bearish momentum has taken hold. And if that stock happens to be in a high-risk commodity business like Arch Coal , which has always been perceived as "having potential," investors will learn fast that things can always get worse.

Second only to Peabody Energy in terms of U.S. coal production, Arch Coal, whose stock has lost 90% of its value during the past five years, has had a hard time overcoming the misery brought upon by weak prices of coal and natural gas. Despite starting 2013 at $7.19 per share, already 80% below its 2011 high, Arch Coal stock has lost another 40% year to date.

Even so, that hasn't been enough to stop investors from insisting "the Street has gotten it wrong" and that Arch Coal stock has finally bottomed. While I'm willing to concede that Arch Coal's valuation is as attractive as that of Alpha Natural Resources , which I happen to like, I didn't come away thinking, however, that there was true long-term potential in Arch Coal's stock following its third-quarter earnings results.

With brutal results already in hand from Cloud Peak , which sent its stock plummeting below book value, I don't believe anyone who understands this industry was expecting any upside surprises from Arch Coal. And management certainly didn't go out of its way to make investors feel any better about the current state of the company.

First, the good news: Arch Coal reported a third-quarter loss of only $1.8 million. While I typically don't celebrate quarterly losses from mature dividend payers, I'm willing to give management credit in this case because this is a significant improvement from a second quarter loss of $60.5 million. On a relative basis, this also outperformed the results from Peabody Energy.

Secondly, Arch Coal management was able to reduce operating cost per ton by close to 12%, demonstrating the difference that can be made when there's a strong emphasis on operational efficiency and profitability. This certainly supports the bullishness I've expressed towards Alpha Natural Resources, whose attention towards efficiency was equally as impressive.