Alon USA Energy, Inc. (ALJ): Hedge Funds Are Bullish and Insiders Are Bearish, What Should You Do?

Is Alon USA Energy, Inc. (NYSE:ALJ) a buy right now? Investors who are in the know are in an optimistic mood. The number of bullish hedge fund positions inched up by 1 lately.

In the eyes of most traders, hedge funds are seen as slow, outdated financial tools of the past. While there are over 8000 funds in operation at the moment, we at Insider Monkey look at the bigwigs of this group, close to 450 funds. Most estimates calculate that this group has its hands on the lion’s share of all hedge funds’ total capital, and by paying attention to their top stock picks, we have unearthed a number of investment strategies that have historically outstripped Mr. Market. Our small-cap hedge fund strategy outpaced the S&P 500 index by 18 percentage points annually for a decade in our back tests, and since we’ve started sharing our picks with our subscribers at the end of August 2012, we have outperformed the S&P 500 index by 24 percentage points in 7 months (see all of our picks from August).

Just as key, positive insider trading sentiment is a second way to parse down the financial markets. Just as you’d expect, there are many motivations for an executive to sell shares of his or her company, but only one, very simple reason why they would initiate a purchase. Plenty of academic studies have demonstrated the market-beating potential of this tactic if investors know where to look (learn more here).

With these “truths” under our belt, it’s important to take a gander at the recent action surrounding Alon USA Energy, Inc. (NYSE:ALJ).

Hedge fund activity in Alon USA Energy, Inc. (NYSE:ALJ)

In preparation for this year, a total of 12 of the hedge funds we track were long in this stock, a change of 9% from one quarter earlier. With hedgies’ sentiment swirling, there exists a select group of key hedge fund managers who were boosting their holdings meaningfully.

According to our comprehensive database, Jim Simons’s Renaissance Technologies had the largest position in Alon USA Energy, Inc. (NYSE:ALJ), worth close to $13.3 million, comprising less than 0.1%% of its total 13F portfolio. The second largest stake is held by D. E. Shaw of D E Shaw, with a $11.4 million position; the fund has less than 0.1%% of GOTHAM ASSET MANAGEMENTits 13F portfolio invested in the stock. Some other hedge funds that are bullish include Israel Englander’s Millennium Management, Ken Griffin’s Citadel Investment Group and Richard Driehaus’s Driehaus Capital.

As one would reasonably expect, some big names have jumped into Alon USA Energy, Inc. (NYSE:ALJ) headfirst. Gotham Asset Management, managed by Joel Greenblatt, established the most outsized position in Alon USA Energy, Inc. (NYSE:ALJ). Gotham Asset Management had 2.9 million invested in the company at the end of the quarter. Neil Chriss’s Hutchin Hill Capital also initiated a $0.6 million position during the quarter. The only other fund with a brand new ALJ position is Mike Vranos’s Ellington.

Insider trading activity in Alon USA Energy, Inc. (NYSE:ALJ)

Insider purchases made by high-level executives is best served when the company in question has experienced transactions within the past 180 days. Over the latest six-month time frame, Alon USA Energy, Inc. (NYSE:ALJ) has experienced zero unique insiders buying, and 3 insider sales (see the details of insider trades here).

Let’s also examine hedge fund and insider activity in other stocks similar to Alon USA Energy, Inc. (NYSE:ALJ). These stocks are Alon USA Partners LP (NYSE:ALDW), Eagle Rock Energy Partners, L.P. (NASDAQ:EROC), Crosstex Energy Inc (NASDAQ:XTXI), NGL Energy Partners LP (NYSE:NGL), and Ferrellgas Partners, L.P. (NYSE:FGP). This group of stocks belong to the oil & gas refining & marketing industry and their market caps match ALJ’s market cap.