Alon USA Energy: Beaten Down, But Not Out

With the NCAA’s March Madness basketball tournament underway, it’s time to correct an oversight by the selection committee. Why is there no Middle East region? Since they neglected to create a bracket for this region, Israel Opportunity Investor [IOI] will provide one.

It’s clear that the number one seed in such a region would be Teva Pharmaceuticals (TEVA). The Israeli company is the largest generic drug company in the world, and the largest and most recognized of Israeli publicly traded companies.

But in the spirit of March Madness, it’s no fun going with a number one seed. As such, the IOI top pick is an upset special. For investors looking to potentially profit from an undiscovered opportunity in Israel, have a look at Alon USA Energy (ALJ). It is an independent refiner and marketer of petroleum products, in the Southwestern and Western regions of the U.S. Alon also operates more than 300 convenience stores in West Texas and New Mexico primarily under the 7-Eleven, and FINA brand names.

Refiners have gotten crushed as the price of crude oil surged past $100/barrel. With the summer driving season approaching, margins for the refiners should finally improve.

Alon stock is down almost 75% in the last 12 months - ouch! However, the company operates in perhaps the best geographic region for a refiner. Both the West and Southwestern U.S. are experiencing population growth, and that should increase the needs for refined petroleum products.

It goes without saying that if you are looking for something in the Mid-East you need to think of something oil-related. Alon has the potential to provide you with the beaten down, upset special stock that will power your portfolio in the future.

Disclosure: The author has no position in any stock mentioned as of March 21, 2008.

Comments

[Dr. Duru:]

Nice call. I would add that insiders are making moves to support the stock. Alon Israel and CEO David Wiessman are making purchases.

However, what do you think of the extremely bearish opinion coming out of Lehman after the last earnings conference call: "Lehman reiterates their Negative sector rating on the refiner group and continue to think that the 2H07 marked the inflection point where the global refining market transitioned to a new multi-year downcycle. Firm is concerned that mgmt could be stretching itself too thin and do not think this is the right time for ALJ to pursue another refining acquisition. They believe the co should focus attention at bringing BSR back as well as improve their California operation. Firm cuts 2008 EPS to $(0.05) and introduces their 2009 EPS at $1.50 per share. Co cuts tgt to $15 from $21."

2008 Mar 21 12:55 PM

[mixter:]

Owning a string of gas stations in West Texas would probably be a good investment since you have to drive to hell and gone to get anywhere. They only problem might be is that you may have to accept pesos! The Jews ought to feel right at home with the topography.

2008 Mar 22 10:19 AM

[traderjohn:]

Well I lost money on Tefron, my Alvarion is down 45% (but I recently bought more.) Maybe this is one Israeli stock that I can make a profit with. Did well with Tesoro a few years ago.

Seems like a good entry point right now.

2008 Mar 22 04:05 PM

[CRYSBALL:]

The economoic consequences of the fire/explosion @ ALj's Big Springs Refinery have yet to be felt. Since ALJ is highly leveraged this would appear to be a big downside for future Qtr earnings.

2008 Mar 24 07:32 AM

[Barco:]

Even with BSR eventually coming back online, doesn't this improve valuation? With ALJ trading between 27 - 45...then the sell off to the teens...shouldn't this provide an excellent opportunity for an investment at current levels ($14.50) to $22-$27.00.

2008 Mar 29 01:12 PM

[horseman:]

One of the "Fast Money" threw this curve 6 days ago and I was foolish enough to take the bait, yec. In at $11.00 and now sinking fast below $9..... MSNBC/AKA "carney speak". But, I suppose "stupid is as stupid does" da! "To Hold or Not To Hold That IS the Question". Any knowledgeable thoughts?

2008 Jul 15 02:06 PM