If you want to see the value of refineries, take a look at Alon USA Energy (ALJ - commentary - Cramer's Take), a stock that I have been recommending for 10 points. This is an independent refiner that just made a $300 million cash acquisition of three refineries. Instantly, the transaction moved the stock up $138 million. I don't think it is done going up, although I wouldn't be surprised if the company used the strength to do an equity offering, which would allow it to replenish its coffers and would give the company, an arm of an Israeli conglomerate, more liquidity.
This business used to be a terrible business. For years, people pitched me refinery stocks, especially Valero (VLO - commentary - Cramer's Take), and I would laugh because there was no way this business could make any money. Yet we have gone from 350 refineries in this country to 140 today and Marathon was the last one to build one, in 1976.
There are two other reasons why the market likes this. Once you own a refinery, you can build it up because you already have the approvals in place. That's how -- thanks Dan Yergin from "Meet the Press" -- we have been able to increase refined supply by 12% over the years.
Secondly, any consolidation of refineries will ultimately lead to better pricing. That's what happens, check out the steel companies! Now I know that the politicians will try to stop such pricing. But that won't happen easily.
So, keep track of this little ALJ. It's got the perfect storm: asphalt to build roads -- we are doing that in spades because of the highway bill, and, of course, refining.
P.S. Will you be there when Cramer makes his next move?
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