We recently compiled a list of the 10 Best Coal Stocks To Buy Now According to Short Sellers. In this article, we are going to take a look at where BHP Group Limited (NYSE:BHP) stands against the other coal stocks.

Coal is highly valued for its energy content and is widely used across the globe for electricity generation, as well as for the production of steel and cement. It is extracted using either the opencast or underground mining methods.

The thermal coal sector experienced a year-to-date (YTD) decline of 0.47%, in contrast to the broader market's 19.55% increase. The coal industry has been grappling with significant challenges, leading to its underperformance in recent years. One of the primary reasons is the sharp decline in coal usage for electricity generation in the U.S., as utility operators increasingly shift toward renewable energy sources and focus on decarbonization. The planned retirement of coal units and stricter emission regulations, aimed at achieving carbon-neutral electricity by 2030, have further accelerated this decline. With coal’s share in the U.S. power generation expected to drop to just 14% by 2025, the industry faces mounting pressure as demand continues to dwindle domestically, according to a report by the Energy Information Administration.

Despite these headwinds, there are potential signs of recovery, especially on the global front. U.S. coal exports are projected to grow as demand rises in European markets, partly driven by the ongoing Russia-Ukraine conflict. Additionally, the expected rebound in global steel production, which heavily relies on coal, is likely to boost export volumes.

Coal Industry Outlook

Coal has long been valued for its role in reducing poverty by providing job opportunities in regions with few employment prospects. In addition, coal mining stimulates economic growth by attracting investment and generating local government revenue.

While "green companies" have advocated for wind and solar power as the cheapest forms of electricity, claiming that transitioning to renewables is key to achieving net-zero emissions, the reality has proven different. The transition to renewable energy has struggled to address the "Energy Trilemma," which emphasizes balancing energy security, affordability, and sustainability.

Nevertheless, Ember’s Global Electricity Review 2023 predicts that wind and solar energy will replace coal by 2030, contributing 41% to global electricity generation, a significant jump from 2021. This shift will require coal generation to decrease by 54% and gas generation to decrease by 24%. At the same time, global electricity demand is expected to rise, with an average annual increase of 3.7% from 2021 to 2030.

With 60% of its electricity powered by coal, China's share of global electricity consumption is expected to rise to one-third by 2025, up from one-quarter in 2015, according to the International Energy Agency. However, according to Sinopec, China’s coal power consumption is expected to halt its growth by 2025, with non-fossil fuel sources predicted to dominate the country’s power mix by 2045. Check out our article '25 Largest Coal Producing Countries in the World' on Insider Monkey. You'll find that China, India, and Indonesia are the top three coal producers, with China leading global coal production for decades and expected to continue dominating in the foreseeable future.

Coal Power Stays Important in the U.S. Energy Mix

The European Electricity Review of 2024 reported a record 19% drop in fossil fuel generation last year, with coal and gas generation experiencing an unprecedented decline. Coal generation declined by 26%, accounting for just 12% of the EU's electricity mix in 2023, while gas generation dropped by 15%, accounting for 17%.

Similarly, the U.S. coal-fired power generation reached its lowest level in four years during the first four months of 2024 but still accounted for 15.6% of the national power mix. While coal output continues to decline, renewable energy growth, particularly wind power, has been slower than anticipated. This has kept coal's share significant, even as the country moves toward cleaner energy sources.

Methodology

To compile our list of the 10 Best Coal Stocks to Buy Now According to Short Sellers, we ranked the holdings by the percentage of outstanding shares that were sold short. Stocks with the lowest short interest were then chosen. Additionally, we included the number of hedge funds that had invested in these stocks at the end of the second quarter of 2024, according to Insider Monkey's database. The stocks are ranked in descending order of short interest.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

An aerial view of a mining operation in action, with large trucks and yellow diggers.

BHP Group Limited (NYSE:BHP)

Number of Hedge Fund Holders: 22

Short % of Shares Outstanding: 0.41%

Headquartered in Melbourne, Australia, BHP Group Limited (NYSE:BHP) engages in the exploration, development, production, and processing of iron ore, metallurgical coal, and copper. Its Copper segment also includes mining silver, lead, zinc, molybdenum, uranium, and gold, while its coal segment focuses on metallurgical and energy coal.

In Q4 2024, BHP Group Limited (NYSE:BHP) reported a $1.8 billion revenue increase, bringing total revenue to $55.7 billion, driven by higher iron ore and copper prices. This growth was partially offset by lower energy coal and nickel prices, along with reduced steelmaking coal volumes following the Blackwater and Daunia divestment in April 2024. Due to the divestment, the company expects a 23% decline in its steelmaking coal production in 2025.

However, net earnings were $7.9 billion, impacted by $5.8 billion in exceptional charges, including a $2.7 billion impairment on its Western Australia Nickel business and a $3.8 billion charge related to the Samarco Dam incident.

BHP Group Limited (NYSE:BHP) maintained strong liquidity in Q4 2024, generating over $20 billion in net operating cash flow. This solid cash generation allowed the company to reduce its net debt to $9.1 billion while continuing to invest $9.3 billion in growth initiatives.

On 30 August 2024, the South Australian government initiated the application process for BHP’s Olympic Dam expansion. The company aims to increase copper production to 500,000 tons by the early 2030s and possibly 650,000 tons by the mid-2030s.

The stock's 0.33% rise over the past month is likely driven by optimism surrounding the Olympic Dam expansion and plans to boost copper output. However, the 20.53% YTD decline is mainly due to earlier copper price surges, followed by a drop caused by oversupply and weaker economic indicators, such as sluggish U.S. job openings and demand concerns.

As of Q2 2024, 22 hedge funds, holding a combined investment of $1.3 billion, are bullish on the stock, as per Insider Monkey’s database. Moreover, 0.41% of shares outstanding were sold short, suggesting that most investors do not expect a significant decline in the stock's value.

Overall BHP ranks 1st on our list of the best coal stocks to buy according to short sellers. While we acknowledge the potential of BHP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than BHP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

 

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Disclosure: None. This article is originally published at Insider Monkey.