Download 7 Jan 16 ALDW is now a buy for the quarter with 11% target

Alon USA Partners is now a Buy for the next Distribution Cycle
The next distribution date is estimated near February 16, 2016.
Investors have historically bid the unit prices up leading to the ex-date, with the increase
in unit price being more than the distribution.
Using our 90-Day Distribution Investment Cycle, we can target larger returns by buying
the lows between the ex-dates and selling prior the ex-date in February.
Our recommended buy is now with the unit price of $22.38 with a target sell of $25.00
prior the ex-date. The return will be near 11% for this quarter.
Alon USA Partners, LP (ALDW) is another one of the master limited partnerships I track
and I apply my 90-Day Dividend/Distribution Cycle investment strategy that creates a
return above the distribution the company pays each quarter.
Alon USA Partners is a limited partnership that was formed in August 2012 by Alon USA
Energy (NYSE:ALJ). Alon Partners owns and operates a crude oil refinery in Big Spring,
Texas, with an aggregate crude oil throughput capacity of approximately 73,000 barrels
per day. Alon Partners also refines crude oil into finished products, which are marketed
primarily in West Texas, Central Texas, Oklahoma, New Mexico and Arizona through its
wholesale distribution network to both Alon Energy's retail convenience stores and other
third-party distributors. Alon has three refineries, one in Big Springs, Texas, along I-20,
the second in Krotz Springs, LA; and the third in Bakersfield, CA, although it has not
been in production since 2012. The current economic conditions are preventing
operations and there is a planned $140 bpd rail unloading facility for when the economic
conditions improve.
Last quarter, Alon USA Partners paid a distribution of $0.98 on November 25, 2015 with
an ex-distribution date of November 16. We recommended a buy on the units when the
stock price was in the low between the ex-dates in the $23 range and to sell the stock
just prior the ex-date in the $26 range. The unit price climbed over the $26 mark the
last 5 days before the ex-date, and closed on November 13 at $26.15.
One concern in the markets this week was the release of economic data from China
that rattled the world markets. I believe most of the effects are complete and the U.S.
markets will begin to recover during the second week of the year. Investors are looking
for opportunities to improve returns over last year’s anemic market returns and are
willing to look at high paying dividend/distribution companies that limit the amount of risk
to their investment.
This quarter, Alon USA Partners’ unit price has dropped to a low of $20.08 on
December 14, 2015 and $20.90 on December 31. With the price at $22.38 at the close
of January 7, 2016 we anticipate the price rising leading to the next ex-distribution date,
somewhere near February 16 (last quarter the ex-date was November 16 and the
company has not yet released the financial report date, nor the ex-date).
The distribution was $0.98 last quarter and based on the unit price of $26.15 at the
close prior to the ex-date was 3.74% for the quarter, or 15% for the annualized return.
Most investors would be very happy with a 15% return for the year, but we can do
better. We know the crack spread was down this quarter, which is a factor in helping
refineries increase earnings during the sale of products. Last quarter the average crack
spread for WTI crude was $15.23, down from $22.29 during 3rd quarter. This will have
a negative effect on the company’s earnings, profit and its distribution to investors. We
are expecting the distribution to drop from the $0.98 to near $0.70. This would normally
have investors bidding down the unit price and we anticipate the drop from the high of
$26.15 last quarter to a high near $25.00 for this quarter.
This is how we implement our 90-day Distribution Investment Cycle. What we are
expecting from our analysis of the market effects and investors buying (higher
distribution returns) will drive the unit price up. If investors are buying Alon at the
current $22.38, and the price climbs to our target of $25.00, that would be a $2.62 gain
for the quarter (11.7% or 46.8% annualized return for the year if we do this 4 times a
year). The buying of the units during the low and selling just prior the ex-date will net
the investor much more than just the distribution amount.