Sometimes being unpopular is a good thing.#-ad_banner-#​

One of the major tenets of value investing is to buy stocks in industries that are out of sync in the business cycle or lagging in some form without having a compromised intrinsic worth. 

Think of it like buying shorts and T-shirts in the middle of winter. You may not be using them right at that moment, but you’re guaranteed to find them on sale as retailers attempt to move inventory in favor of warmer, more seasonable clothes. 

If you’re OK with buying something without expecting an immediate payout, you have what it takes to be a classic value investor. 

Last year was a banner year for the stock market — so where can we find “out of season” stocks? In the most unlikely of sectors: energy.

Energy has performed well this year. The PowerShares Dynamic Energy Sector Portfolio ETF (NYSE: PXI) is up 27% since the start of 2012, but that doesn’t mean that all energy stocks are equal. Investors have been clamoring for green energy lately as evidenced by the gains in solar stocks: Guggenheim Solar (NYSE: TAN) is up an astounding 157% in the same period. 

As the global economy continues to improve, power consumption is quickly growing to all-time highs. But not every energy sector is seeing sunny days. Coal has struggled for a couple of years now, thanks to the abundance of cheap natural gas. The MarketVectors Global Coal Index (NYSE: KOL) is actually down 26% since the beginning of last year — but a turnaround could be in the works.

Coal has been stagnant, but a recent report by Moody’s shows that production is expected to pick up 2% to 3% in 2014. While this should be a boon to all coal companies, one in particular has been defying the odds by posting consistent gains, even in the midst of a struggling market: Alliance Resource Partners (Nasdaq: ARLP).

Thanks to 90% of Alliance’s contracts being priced through 2015, the company has been able to produce steady results. The stock trades at a price-to-earnings (P/E) ratio of just 10.5; a long-term growth estimate of 14% gives ARLP a price/earnings-to-growth (PEG) ratio of 0.73. 

Perhaps the most impressive aspect of ARLP is its dividend yield of 6.3%, which has been fueled by a run of 22 consecutive quarters of dividend increases. ARLP still has a payout ratio of only 50%, which means Alliance has plenty of room to further boost distributions and invest in growth. 

Alliance stands out amongst its competitors when it comes to operating margins. Alliance is near 20%, compared with 6% for Peabody Energy (NYSE: BTU) and Arch Coal (NYSE: ACI) is actually negative. It’s an even bigger gap when it comes to return on equity: 45.3% for Alliance compared with negative 21% for both Peabody and Arch Coal. If we look at income, Alliance made $268.9 million over the past 12 months while Peabody and Arch Coal lost $884 million and $653.6 million, respectively. 

While the rest of the industry is desperately cutting back, Alliance is ramping up production at its Tunnel Ridge location with White Oak and Gibson South mines expected to come online this year. The company is set to expand its market share while its competitors cut back and try to come up with answers.

Risks to Consider: Natural gas and shale oil could continue to put pressure on coal prices, which would impact next year’s growth estimates. 

Action to Take –> Earnings per share (EPS) next year are estimated to be around $7.75, which, at the stock’s current P/E of 10.5, gives ARLP a price target of $81 — a 10% discount. Including the 6.3% dividend yield, investors could see gains of at least 16% in the next 12 months.

P.S. Dave Forest, StreetAuthority’s resident energy and resource expert, just finished putting together a report on another group of “hated” stocks right now that could break out: gold miners. A select group of miners has been absolutely battered this year — but now it’s time to start looking for bargains. To learn more about this opportunity, click here.