Analysts at Citigroup this morning boosted their opinion on coal companies Peabody Energy (BTU: sentiment, chart, options) and Arch Coal (ACI: sentiment, chart, options) . Both stocks were upped from "hold" to "buy" following Wednesday's sector-wide sell-off in coal equities. In a note to clients, the broker said, "We see the recent 10 - 18% correction in the equities to be excessive, in response to a downtick in European spot from records." Yesterday, coal prices dropped sharply under a wave of selling pressure that many attributed to profit-taking by big European banks.

The brokerage firm noted that Peabody is a bit of an underperformer in the high-flying sector, though its exposure to Australian imports lends it some allure. Meanwhile, Arch Coal was praised for being the "most insulated from the downtick in European thermal prices, as its Central Appalachian exposure is largely met and the PRB accounts for the bulk of tonnage."

Both stocks have opened higher out of the gate. On Wednesday, Morgan Stanley cited coal stocks' strong fundamentals, and said that weakness in share price could create "an attractive opportunity to build positions." Sure enough, bullish bettors rushed to initiate positions on ACI. On the International Securities Exchange yesterday, traders bought 6 times more calls than puts to open on the coal concern.