1 Stock a Young Warren Buffett Would Be Buying Hand Over Fist

Dear Bottom Line Investor,

Warren Buffett's investment strategy, emphasizing value investing, long-term growth, and fundamentally strong companies has stood the test of time.

Alas, his own success as an investor has forced Buffett to only buy the shares of the biggest companies - the ones that can “move the needle” as the Oracle himself says.

Read on to discover why, if a young Warren Buffett were navigating today's market, he would likely be drawn to Warrior Met Coal (HCC).

Warrior Met Coal currently trades at about 7 times last year's earnings, a tantalizing figure for any value investor. This metric alone would likely capture Buffett's attention, reminiscent of his penchant for picking up underpriced stocks relative to their intrinsic value. The company's robust financial health and its ability to consistently generate strong returns on invested capital, with a median return of 25.2%, underscore its potential as a value investment.

Buffett's approach to commodities has always been cautious, focusing not on price speculation but on inherent demand and supply dynamics. Metallurgical coal, crucial for steel production, presents a unique case. Unlike thermal coal, which is losing ground to alternative energy sources, metallurgical coal has no substitutes in the steel-making process as highlighted by Buffett-disciple Mohnish Pabrai.

Given the ongoing need for steel in global infrastructure and manufacturing, the demand for metallurgical coal remains robust, providing a stable market backdrop that would appeal to Buffett.

Looking long-term, Buffett values companies that are poised for sustained growth. Warrior Met Coal's strategic focus on expanding its operations is evidenced by the development of the Blue Creek mine. Expected to be operational by 2026, this new venture is projected to significantly boost the company's revenue and earnings. Such forward-looking initiatives would likely align well with Buffett’s investment philosophy, which favors companies investing in their future growth.

While the young Buffett might find Warrior Met Coal's current market positioning and future prospects appealing, it's essential to remember that every investment carries risk, especially in a cyclical industry like coal. However, the company's strategic growth plans, fundamental strengths, and the essential nature of its product in steel production might just make it a candidate for investment, worthy of a young Buffett's portfolio.

Bottom line: Warrior Met Coal embodies many of the hallmark principles that Buffett has championed — (1) A misunderstood stock lying in plain sight, (2) Trading below its intrinsic value, (3) With a bright future ahead bolstered by strategic growth initiatives like the Blue Creek project.