The Next Wave of Ethanol Profits
Antisthenes hit the nail on the head when he said, “Pay attention to your enemies, for they are the first to discover your mistakes.”
Oh, how right he was!
Years ago, when I first began my many rants about renewable energy markets, I was met with much opposition. But admittedly, my stubbornness (and ego) clouded my judgment a bit.
You see, between my environmentalist baggage and my introduction to Peak Oil (thanks to Mike Schaefer), it was illogical to me that anyone would not embrace this stuff.
What I missed, however – was the simple truth that my opponents tried to drill into my head, time and time again.
My analysis of these markets, despite how relevant it was, came too early. And investors wanting immediate gratification would not find it here.
Of course, those who did listen early on (and hung in there for the long haul) ended up bagging those 214%, 300% even 564% gains we saw in the first round of the renewable energy bull market.
And now that many of these stocks are back down to incredibly low levels – thanks to the recent correction, it’s time to load up again.
It’s round two – and there’s no better place to start than ethanol!
The Engine to Change it All?"The technology is so revolutionary that it was headlined on CNBC, FoxNews, MSNBC and CNN.
The stock's already up more than 261% since March! But with major Defense contracts already underway and the drooling interest from the Big Three Automakers, I think it's going to go a lot higher
- maybe another 312% by the end of the summer.
A lot has changed over the past few years – and clearly, ethanol is white hot.
And believe me…we’ve been taking full advantage!
But this is no time to get complacent.
The fact is, this is the time to focus, not only on the obvious ethanol plays out there (we’ve already tapped some of the early winners anyway) – but rather those connected markets that are pointing us directly to our next wave of Green Chip profits.
You see, the ethanol industry has become so hot – even as the market continues to get crushed, analysts are jumping all over the latest ethanol IPOs slated to hit this summer. And with good reason. They’re all are looking to produce some pretty impressive numbers right out of the box!
In fact, Verasun, the second largest U.S. producer of ethanol, went public today – jumping 29% in its debut. It’s also one of the few new IPOs that’s been able to survive without a price cut.
Even after the recent market massacre, the ethanol IPO comes out on top!
Of course, at this stage of the game, there’s also a lot more going on here than just ethanol production. And that’s what we’re focusing on for our next wave of ethanol profits.
It may not be what everyone’s talking about right now. And hell, I might be jumping the gun again…just like I did a few years back. But this is important stuff. And if you’re trying to get the most bang for your ethanol buck (and I’m talking about long-term consistency here) you have to look for those ethanol companies that are logistically superior.
Because it’s this superiority that will separate the players from the duds in the very near future.
You see, unfortunately, a number of the smaller ethanol producers that set up shop before the ethanol boom, did so without really considering a crucial component of their logistical planning.
They didn’t set up their facilities near operational rail lines!
And since the cheapest way to ship ethanol these days is via rail – many of the newer production facilities built near rail lines will, and already have a significant advantage.
Last year, a Union Pacific official said the railroad expects to transport 2.8 billion gallons of ethanol annually by 2008…nearly doubling its ethanol shipments. And Burlington Northern Santa Fe transported 37,100 tank cars of ethanol system-wide in 2005. That’s about four times as much as in 2000.
Moving ethanol by rail isn’t a possibility – it is, and will continue to be the main line of transportation for ethanol producers.
So, that being the case, is the ethanol company you’re investing in situated near an operational rail line? Moreover, is it producing enough ethanol to fill those rail cars – securing better pricing and quicker delivery than a smaller facility that produces far less?
These aren’t random considerations today. These are deal breakers!
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Victorious in Vulnerability
Admittedly, one of the downfalls of corn-based ethanol is that it doesn’t take much more than a good drought to rattle the market.
Anytime the pricing of your feedstock is dictated by Mother Nature’s mood…there’s a risk calculation that’s figured into the equation. This is one of the reasons so many ethanol producers are now investing a significant chunk of their R&D budgets into cellulosic research. As cellulosic ethanol isn’t held hostage by corn prices.
Nonetheless, the reality is that today, nearly all of our domestic ethanol supplies come from corn. And that being the case, it only makes sense to have a management team in place that’s primed with the best commodity experts in the business.
Yet, there are a number of ethanol producers that still don’t have this kind of commodities ‘support staff’ in place. So far, they’ve been able to get by. But it’s not going to take much before this vulnerability dries up their corn supplies because a smarter, more sophisticated ethanol producer was able to use commodity volatility to its advantage.
Mark my words – this is exactly how the leaders in this industry are going to maintain market share in the very near future. And these are the companies that savvy Green Chip investors are focusing on today – while they’re still cheap!
You can read more about these companies at Green Chip Stocks .
Until next time…
Managing Editor, Green Chip Stocks