Despite Quadrupling Since January, Still Bullish on Andersons (ANDE)

May. 9.06 | About: The Andersons, (ANDE)

Ever since President Bush gave the speech on Jan. 10 about America's need to seek alternative energy sources, ethanol stocks have taken off. So today, I'd like to talk about an ethanol play that actually has good fundamentals & earnings growth, unlike Pacific Ethanol (NASDAQ:PEIX).

From Yahoo Finance:

The Andersons, Inc. (NASDAQ:ANDE) operates as a diversified agribusiness and retailing company primarily in the United States. It operates through four segments: Agriculture, Rail, Turf and Specialty, and Retail. Agriculture segment engages in purchasing and merchandising grain, as well as operating grain elevator facilities in Ohio, Michigan, Indiana, and Illinois.

Catalysts that rank ANDE a buy:

* President Bush has offered ethanol distilled from corn and other crops as a gasoline additive that can mitigate America’s addiction to imported oil.

* Ethanol is also getting a boost as the refining industry uses it as substitute for methyl tertiary butyl ether, or MTBE, a gasoline additive that is considered toxic and faces bans in several states. The federal Energy Information Administration says most refiners are trying to cut out MTBE before the summer driving season.

* The fuel, renewable and more environmentally friendly than gasoline, is already being used as a gas additive, replacing another additive that was found to pollute groundwater. The result- a squeeze on supplies that has doubled ethanol's wholesale price, to $2.75 a gallon, about what gasoline costs at wholesale. With corn prices low and gas prices high, ethanol's profit margin per gallon is at a record of more than $1.

* In the past year ANDE has invested $36 million for minority stakes in three plants that will produce the fuel, which can be made from a variety of plant materials including corn, Andersons speciality.

* Competitive Analysis: Gross Margins, ANDE 15.14% vs Archer Daniels (NYSE:ADM) 7.41%, Q Earnings growth, ANDE 270% vs ADM 29%, Debt/Equity, ANDE 1.8 vs ADM 0.5. ANDE does trade at a multiple of 29 and ADM at 24, but the higher multiple is justifiable with ANDE's higher growth. ANDE has also been investing in building more plants and infrastructure, leading to a higher D/E ratio.

I would advise caution when buying ANDE. The stock has almost quadrupled since January, but with the U.S. Govt. pushing alternate energy, especially ethanol, I believe the trend of ethanol is one that is here to stay for sometime.

ANDE 1-yr Chart