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.

Further Foolishness:

The "Coal" tag within the Motley Fool CAPS community lists 21 coal companies. Find out what other investors are saying about the stocks you're watching, or share your Foolish thoughts with us. CAPS is free and fun!

Fool contributor Christopher Barker captains yachts and writes about stocks. He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Arch Coal, Massey Energy, and Peabody Energy. The Motley Fool has a disclosure policy.