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How to Find the Right Coal Stock

"In this market, coal is king," Cramer said Tuesday. "Right now the price of coal is rising here in the U.S. thanks to the economic recovery along with the new environment regulations that are restricting supply."

The "Mad Money" host said coal is also being helped by increased demand from developing countries, including China and India. Both countries are currently constructing new coal-burning power plants. Cramer said on average, the People's Republic is building one new coal plant a week.

When it comes to playing coal, Cramer said "not all coal stocks are created equal." Therefore, he recommends investors know what they own. Cramer generally prefers coal that can be exported to fast-growing emerging markets in Asia. He also tends to like metallurgical coal, which is used in steel production. Of all coal stocks, Cramer's faves include Peabody for exports and Walter Energy for met coal.

"But perhaps a rising tide can lift all coal ships, particularly when they are superbly managed," Cramer said, noting that Arch Coal reported a terrific quarter on Tuesday, having beat earnings estimates by a penny on revenues that rose 22.6 percent year-over-year and raised its full-year guidance for 2011.

Cramer said the St. Louis-based company is a play on the Powder River Basin, a coal mining hotbed that stretches from southeast Montana to northeast Wyoming. In turn, it produces cleaner, low-sulfur coal that Cramer said is now favored by new U.S. environmental regulations. Currently, three-quarters of its coal goes to U.S. utilities, but Cramer said the company is working to increase exports. Its exports were up by 40 percent last quarter.

Cramer thinks Arch Coal is "making the right moves," but is it a buy? To find out, Cramer spoke with CEO Steven Leer. Watch the video to see the full interview.

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