Vertex Energy

01/14/2015 7:00 am EST

Focus: STOCKS

Tom Bishop

Founder, BI Research

Our top idea for 2015 is a Houston-based leading recycler, re-processor, and re-refiner of used motor oil and other petroleum byproduct streams into higher value end, explains small-cap expert Tom Bishop editor of BI Research.

Vertex Energy (VTNR) has been hit hard with the rest of the energy sector due to the collapse in oil prices from over $100 this summer to under $50 currently. For oil drillers this lost revenue pretty much comes right off pre-tax income as well, a huge hit to profitability. 

But for Vertex, a recycler of used oil, it can do well at any given oil price-as long as it isn't rapidly falling-by managing the spread of what it pays for used motor oil (or more recently what it charges for collection) versus what it can sell the various re-refined products for. 

So, for Vertex, making a profit doesn't really matter that much if oil prices stabilize at $55 or $90.  And management has over 25 years of experience managing that spread. 

Over the longer term, I believe the price of oil is more likely to move higher than lower as drilling activity globally tapers off in 2015.  Nothing brings about higher oil prices better than low oil prices. 

The shares traded at $10 six months ago and then were hammered to excess, probably because Vertex had to work out some covenant issues with its lenders (as do many energy companies in this environment), in part due to a second acquisition it was making this year. 

Before oil prices plummeted, the 2015 EPS consensus was $.92. 

While this consensus has dropped to $.47 and could go lower due to oil's continuing drop, this gives you an idea/range where earnings should recover to once oil prices stabilize and ultimately begin to recover. 

In December, the CEO purchased 488,600 shares at $3.07, which tells you something.  The shares have bounced from $3 to as high as $4 recently and I think more is on the way once oil prices stabilize. 

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