What Could Drive Natural Resource Partners Stock in 2017?
2016 in review
Although the majority of coal (KOL) stocks began 2016 on a weak note, they’ve outperformed the broader market so far in 2016. Much of those gains were seen in the second half of 2016. OPEC’s (Organization of the Petroleum Exporting Countries) crude oil production curtailment deal followed by its historic production curtailment agreement with non-OPEC oil producers boosted commodity prices in 2H16. Moreover, Donald Trump’s US presidential victory helped the coal stocks to retain their gains and their momentum.
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Natural Resource Partners rose nearly 175% so far in 2016. In contrast, its peers CNX Coal Resources (CNXC) and Alliance Resource Partners (ARLP) rose 101% and 62%, respectively. Westmoreland Coal (WLB) has more than tripled so far this year. The SPDR S&P 500 ETF (SPY), which tracks the broad-based US markets, rose nearly 12% during the same period.
Trump’s infrastructure push
NRP’s construction aggregates mining and production business largely depends on the construction activity in the markets it serves. The anticipated infrastructure spending by the incoming president could drive the company’s revenue from its aggregates mining business. However, investors should now focus on the implementation part of the proposed spending plan.
According to Donald Trump’s “An America First Energy” plan, Trump intends to make America an energy-independent nation by bringing out untapped fossil fuel reserves such as shale oil, natural gas, and coal. He also intends to eliminate the moratorium on federal coal leases introduced by the Obama administration in January 2016. This could have a positive impact on NRP’s revenue from its coal royalty business.
Coal’s share in electricity generation
According to the EIA’s (U.S. Energy Information Administration) latest short-term energy outlook, coal is expected to surpass natural gas’s share in electricity generation this winter, which could have a positive impact on NRP’s revenues from its coal royalty business in 1Q17.
In the next and final part, we’ll compare NRP’s valuation to that of its peers.