Alon USA Energy, Asia Pacific & Wire: Discounted Opportunities

Includes: ALJ, APWC
by: William Velmer

The blood is flowing on the streets and stock bargains litter the landscape. Investors that have any money left and are willing to take risks can have a field day scooping up disconnected and discounted opportunities that have huge upside potential in both the near and long term. 

Alon USA Energy (NYSE: ALJ) ($10.86)

Alon USA Energy operates as an independent refiner and marketer of petroleum products such as gasoline, diesel, natural gas, jet fuel, petrochemicals and feedstock.

The Asphalt segment markets paving and roofing grades of Asphalt and performance-graded asphalts, emulsions and cutbacks. The Retail segment operates convenience stores. As of 12/31/07 this segment owned and leased 307 convenience store sites and 1100 FINA brand retail sites.

ALJ has interesting potential on many fronts. The company's refinery at Big Springs had a major fire break out in February 2008 which caused major damage and subsequently shut down. This situation hit the stock hard. The high price of crude has dramatically lowered the profits from all divisions, and this has hit the stock hard, as well. The overall market condition has also caused a share price erosion, and "short" sales have continued to pressure this stock and countless others. ALJ trades slightly above its 52wk low of $7.31 and dramatically below the high water mark of $41.25.

We love out-of-favor situations that have been overlooked by the herd, and feel that ALJ should move higher due to corporate developments or even a buyout scenario. The Big Springs refinery is repaired and, according to management, should be back to full production within a week or so. The recently completed acquisition of the Krotz Spring will increase crude refinery capacity to 250k barrels/day, an increase of 50% prior to the announced acquisition. With the recent collapse of crude prices by over $30.00/barrel, it should enhance profits for all divisions. With the insurance proceeds ALJ, was most likely able to rebuild Big Spring as if it was a new refinery - which in reality is very bullish for future production reliability.

One of the most bullish angles of ALJ is the massive insider and corporate buying of shares on the open market during the past few week, as well as over the last six months. During the month of August 2008, shares purchased by the largest shareholder (Alon Israel Oil owns 35.5 million shares out of the 47 million share fully diluted and outstanding) totalled almost 1.1 million shares. Form 4 filings on August 22 indicates 350k bought on August 20, 21 and 22.

We believe that Alon Israel Oil, which owns over 78% of ALJ, could easily tender the balance for a very low premium above current levels and receive a huge reward during the next few years, especially if the company spins off the retail and service station division in the form of an IPO. Management could easily offer $20/share for the balance of the shares outstanding, which is only $200 million and most likely get that return by a few times. Even if this is not the current scenario, one cannot overlook the extremely strong buying of shares from the open market by management and the largest shareholder, Alon Israel Oil.

Bottom-line: We have a stock that is out-of-favor, trading near its 52wk low, very heavy insider buying, potential buyout by its largest shareholder, potential IPO of a division that could unlock hidden value for shareholders, doubled refinery capacity, restarting of the Big Springs refinery, low PSR and PE estimates for 2009, and a stock that offers little downside risk with attractive upside potential in both the near and long term. We rate ALJ with a strong BUY recommendation at current levels.

Asia Pacific Wire & Cable (AWRCF.OB) ($3.50)

AWRCF is a leading manufacturer of wire & cable products for the Telco and Power Industries in Thailand, China and Australia. According to management, major exchange listing is anticipated during the next month or so.

In our opinion, this stock is most likely the cheapest growth and discount value play around. We anticipate that after the 6 month earnings report slated for early September 2008, management will file for major exchange listing.

For the year ending December 2007 ( f-20 filing), rev reached $510 million and net of .35/share. The current book value is around $10.00 (does not include updated valuations of huge land and buildings horde owned in many Asian countries) and each share is worth $3.75 in cash/share. Michael Dell, founder of Dell (NYSE:DELL) owns 20% of the total 13.8 million shares outstanding. Current market conditions have ravaged and distressed this already heavily discounted International value and growth stock. Trailing 12 month PE is around 5X (growth rate has been around 30%/year for the past 5 years), PSR=.08, trading at 65% below stated BK and trading below cash value.

Bottom-line: This stock has to be the cheapest stock in the free world. AWRCF should be trading at $10, not $3.  

Disclosure: We hold positions in both stocks. We have not been paid by either company for our recommendation. We may buy, sell and or hold shares at our own discretion.