Ethanol Hype Drove Anderson's Up Too High

| About: The Andersons, (ANDE)

The past year has been really nice for shareholders of Andersons (NASDAQ:ANDE). The stock rose from below $15 to just above $55. The past few months have seen the price cool off a bit, and it’s now trading below $40. I think this is a solid company with a bright future, though it may be some time before the price drops again to a level where you’ll want to buy.

Andersons is an Ohio-based agribusiness corporation that has been around since 1947 and has four main divisions: agriculture, rail, turf and specialty, and retail. The agriculture division buys and sells grain and runs various grain-elevator facilities; the rail division buys, sells, and services railcars and rail equipment; turf and specialty produces and sells fertilizer; and the retail segment distributes lawn and home care products, as well as some sporting goods and car needs.

It’s a wide range of products and services, but the bulk of them center on agribusiness, and the company has really benefited from the rising prices of commodities. Revenues haven’t risen significantly -- they’ve been growing steadily rather than explosively -- and I suspect the nearly 400% growth in the stock price was fueled by investors’ excitement about commodity prices rather than by fundamentals. But the company is solid, and I think it could provide a nice stable, growing company for a portfolio when bought for the right price.

In addition to the tried and true products and services that have been the company’s bread and butter for sixty years, there may be room for extra growth in the ethanol business. Andersons has been investing more in ethanol plants and is well poised to benefit from the move toward green tech in the coming years.

However, as much as I am a proponent of alternative energy, long term, the ethanol business doesn't look like it is scalable as much as hybrids, for example. This may be one of the reasons why the stock has fallen off from its high -- "the shorts" have already figured out that the word "ethanol" made every stock shoot up to the moon the past months. And, as we know, what goes up, must come down!

Type of stock:
A reliable, sixty-year-old agriculture business that has enjoyed upside from being considered an ethanol play.

Price target:
The company is currently trading about 30% off its 52-week high. Normally I’d suggest buying at that level, but the rate of growth was so explosive to get to the high that I think the price may need to drop a bit further before it starts climbing again. If ANDE drops into the low $30s or, preferably, the high $20s, I’d think about getting in and enjoying the long-term value of this tried-and-true company. But let the ethanol rage play itself out first.

ANDE 1-yr Chart