Warren Buffett’s Favorite Coal Stock?

Cloud Peak Energy could “quickly become the premium coal company in this country,” Cramer said Monday. The firm will hold its IPO this week, and he urged investors to buy it.

Consider this “a distressed sale by an indebted seller,” Cramer said, as Cloud Peak parent company Rio Tinto looks to unload debt. But that’s the best kind of sale, because it means that investors should get the new stock at a great price.

Publicly traded rivals such as Arch Coal , Peabody Energy and Alpha Natural Resources trade at well over 20 times 2009 earnings. But the deal values Cloud Peak, which was carved out of Rio Tinto’s Western US coal business is the third-largest producer in the country, at just seven.

“A gigantic discount,” Cramer said.

Cloud Peak Energy, which will trade under the symbol CLD, is expected to price on Thursday between $16 and $18. That’s “much lower than what I think this stock is worth,” Cramer said, “based on the fundamentals.”

“At $18 or less,” Cramer said, “I think you have to pounce on this one.”

Don’t believe him? Well, keep in mind that Warren Buffett’s purchase of Burlington Northern Santa Fe was a bullish call on coal. Especially the cleaner kind mined by Cloud Peak. Watch the video for Cramer’s full report.

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    Jim Cramer is host of CNBC's "Mad Money" and co-anchor of the 9 a.m. ET hour of CNBC's "Squawk on the Street."

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