Regardless of Donald Trump’s promises to bring back the coal sector, its best days are behind it. Still, the U.S. and the rest of the world are going to be dependent upon coal for decades to come. That means some companies will continue to make money, even as the sector shrinks.

Last summer we added a couple of coal partnerships to the portfolios of The Energy Strategist. We saw a sector that had become oversold and was due for a cyclical recovery. At the time, in These Coal Canaries Will Sing Again, we wrote:

The more pressing effects of unfavorable weather and discounted U.S. gas are likely to reverse before long, and when they do an industry thinned out by the spate of recent bankruptcies and mine shutdowns is likely to see a cyclical recovery. Even for a mining sector in a secular decline, this recovery should result in a significant equity rally. Our chosen vehicles for speculation on this theme are the low-cost coal mining master limited partnership Alliance Resource Partners (NASDAQ: ARLP) and its general partner Alliance Holdings (NASDAQ: AHGP).

Both were placed in the portfolio, and both quickly rallied. Following a quick double-digit gain, and ahead of an election that we thought would prove more bad news for the coal industry, we moved many coal holdings, including these two picks, to holds. Nevertheless, they continued to show strength. During the recent portfolio pruning, I moved both back to Buys. On April 7, in Pruning The Portfolio, I wrote in part:

Aggressive Portfolio recommendations Alliance Resource Partners (NASDAQ: ARLP) and Alliance Holdings GP (NASDAQ: AHGP) have been excellent for subscribers. I think both can continue to deliver solid yields to investors for years, but I am setting tight limits on each. If you don’t get them below the Buy limit, don’t chase them. Exercise discipline and wait. Buy ARLP below $22 and AHGP below $28.

Subscribers had ample opportunity to buy them below those limits, until last week when first quarter earnings were reported. 

ARLP reported increased coal sales volumes and much higher net income. The company reported a year-over-year quarterly revenue increase of 11.7%, net income attributable to ARLP up by 121.7%, and EBITDA up by 41.5%. ARLP also increased its estimates for 2017 full-year coal production, coal sales volumes, revenues, net income and EBITDA.

The market liked those results very much. ARLP and AHGP both rallied by about 10% on the news. Since being added to the TES portfolio last June, ARLP now has a total return of 67% and still yields 7.7%. AHGP is up 60% and yields 7.5%.  

While these are extraordinary results, I don’t believe either is yet overvalued. Again, I am not inclined to raise the buy limits, but would rather exercise discipline and try to pick up units on dips. Both are less than 5% above their buy limits, so the previous advice remains intact. Buy ARLP below $22 and AHGP below $28.

I certainly hope you made some money on these recommendations. The energy sector has hit a rough patch this year after an outstanding 2016, but the coal sector has been a bright spot. If you’ve had success with our recommendations, or otherwise enjoy the insight into the energy sector we’d love to hear the details. You can share them by participating in this very short and easy survey.