Coal as a sector caught fire early in 2008, but then burned a hole through many investors' portfolios, as mining stocks snapped back with a vengeance. For the intrepid investor willing to hold an ember, however, I believe the sector offers substantial upside potential.

I'll admit that Massey Energy (NYSE:MEE) hasn't exactly kept me warm this winter. Parting with conventional wisdom, I held on to a miniscule stake through a ruthless share collapse. But after reviewing Massey's latest earnings release, my opinion of the stock is looking up.

Massey's earnings disappointed the analysts, but not this Foolish shareholder. Its $53.6 million in net income for the fourth quarter, along with a 63% improvement in EBITDA to $148.8 million, marked an operational success that its battered share price doesn't seem to reflect. Massey's operating cash margin improved by 69% to more than $13 per ton. Competitor Alpha Natural Resources (NYSE:ANR) was not as fortunate, posting a fourth-quarter loss.

Arch Coal (NYSE:ACI) CEO Steven Leer describes coal as a recession-resistant resource. While massive share declines in coal companies have burned Fools like me who figured long-term fundamentals would remain in play, I certainly see limited downside risk from here. Steel companies like Nucor (NYSE:NUE) are already operating at less than 50% of capacity, and despite rapid price declines, coal prices remain above historical averages. Meanwhile, miners like Peabody Energy (NYSE:BTU) and Patriot Coal (NYSE:PCX) have moved swiftly to reduce production in response to weaker demand.

Of all the deep-value prospects within the embattled coal-mining sector, I would not list Massey among my top picks. Given allegations of environmental transgressions and legal battles over the company's practice of mountaintop removal, I believe Massey is an easy target for potential regulatory changes. Furthermore, the company's $250 million settlement of another court case drained substantial liquidity at a most inopportune time.

With far less exposure to the unpopular surface mining practices of fellow Appalachian coal miners, CONSOL Energy (NYSE:CNX) remains a favorite. For all of CONSOL's strengths, however, Peabody Energy remains this Fool's king of coal. Sorry, Massey.

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