Arabian American Development Company Ready for the Big Time

Sep.18.06 | About: Trecora Resources (TREC)

Arabian American Development Company (OTC: ARSD) refines specialty petrochemical products and develops mineral properties in the United States and Saudi Arabia.

Through a series of wholly owned subsidiaries that include American Shield Refining, Texas Oil and Chemical, South Hampton Resources, and Gulf State Pipe Line Company, this company has been generating very strong growth and I think it’s going to emerge as a strong player in the energy sector. As an exceedingly small and low profile company it’s certainly less of a known quantity than most companies I pick, but I think it’s poised for the kind of growth that could really reward an investor who’s willing to take the risk.

Through its several subsidiaries, ARSD controls numerous stages of the oil process, from refining to pipelines to a truck and rail loading terminal. This will allow ARSD to avoid getting squeezed by pipeline and other "delivery" companies, and ARSD should be able to maximize its profits as oil prices continue to rise in the future.

To be sure, the company faces the usual risks of any oil company, from a sudden drop in price to hurricane damage, but these are faces by ARSD’s competitors as well, and I believe ARSD’s vertical organization and undervalued stock will minimize this risk as much as possible.

The company has had a rocky past, including a run-in with the SEC, which was settled, and it was delisted from NASDAQ back in 2000. But with revenues growing quickly (results for 2005 were 40% to 50% better than 2004, and 2006 is looking to grow at the same rate). I think ARSD is ready for the big time.

Type of stock:
A very risky but hugely undervalued petrochemical company with a strong vertical structure that is poised to reap the profits of rising oil prices.

Price target: I think this one is going from $3.00 to $20. If you buy it now, while it’s still around $3, you could be in for a serious windfall. But be prepared to potentially lose your money, too. There is a positive correlation between risk and reward.

ARSD 1-yr Chart

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