Comment Twelve years ago, while manning a research desk for one of the largest financial publishing companies on the planet, I discovered a letter from an angry subscriber to one of the company’s more successful newsletters.
Somehow that letter ended up in a file that I just recently re-discovered while cleaning out some old boxes. And reading the letter today…it clearly exhibits the mindset that many investors had back in 1994 regarding the future of online retail.
Take a look:
Dear Fool,
It is rare for a man of my stature to dictate such a letter. But your absurdity has left me no choice.
Every month I read your ridiculous nonsense about the internet with great cause for concern for your many subscribers. You have jumped on a bandwagon that has no basis in reality. No educated person will volunteer his credit card information over the internet to purchase goods or services. It is too dangerous. Have you never heard of hackers? There is absolutely no way any of these companies will succeed. You are so caught up in the technology you have forgotten the human element. If you have invested in these companies yourself, kiss your money goodbye!
Oh, how times have changed. Or have they???
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Cheaper than Gas
It’s funny, but those who made a fortune early in the internet boom were often the same investors who found themselves the target of such rants.
And today, the same holds true for renewable energy.
In fact, just this morning I received an e-mail from an investor who wanted to know why I would be so bullish on ethanol when E85 (85% ethanol, 15% gas) is less efficient than regular gasoline.
Well, the reason is simple.
If ethanol was already heavily integrated into our fueling infrastructure, and was just as efficient or more efficient than regular gasoline – the real opportunity to tap these stocks at a bargain price would no longer exist.
Besides – even now, while the efficiency measurement is not competitive with gasoline, the stuff is still selling…and in many parts of the U.S., for a much cheaper price than regular gas.
In Minnesota, motorists bought a record 2.1 million gallons of E85 last month. And on average, the stuff sold for $0.43 per gallon less than regular gas over the first six months of the year.
And in Texas, H.E.B stores have been peddling the ethanol mix for about $0.30 cheaper than regular gas.
Of course, we’re here for the gains – not necessarily the cheap fuel.
That’s why today, I’d like to point out something that few investors are paying attention to. And that’s the fact that while ethanol momentum has never been stronger – there are really only a handful of ethanol stocks worth anything.
In fact, most of the more ‘well-publicized’ ethanol stocks in the market right now are completely over-hyped, overpriced and overblown.
I know, I know. I’m supposed to be the green guy that loves all things ethanol. But I have to call them like I see them. And facts are facts.
You see, some of the biggest names in ethanol right now, with the exception of only a few, are nothing more than ethanol production facilities.
The produce the stuff. That’s it!
Well, hell – do you have any idea how many tiny farmer co-ops produce ethanol too?
So you’re producing ethanol – big deal!!!
Ethanol plants are popping up all over the U.S. And undoubtedly, there’s a market for the stuff.
But when it’s time to buy – those who need to move this stuff and blend it will require two things: Fast, consistent delivery and the lowest price.
Most of these hyped-up ethanol stocks that we keep reading about today simply won’t be able to produce ethanol inexpensively in the short-term or for the long-haul.
Moreover, few can guarantee fast, consistent delivery on their own.
This is a huge problem.
Look at it like this…
If Exxon is selling 30 million gallons of gasoline per day (much of which has to have some kind of ethanol blend because of mandates) – do you honestly believe they’re going to spend a penny more than they have to? And do you think they’ll be comfortable waiting around for a late shipment?
Not a chance!
Point is – there is a tremendous opportunity for ethanol investors right now. But only for those who are savvy enough to see beyond the hype of the big IPOs and focus solely on those companies that can consistently provide the stuff at the lowest cost.
It’s not rocket science.
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My Favorite Ethanol Stock
A few weeks ago I told you about an ethanol company that we believe is one of the last ground-floor opportunities within this market – Alternative Energy Sources (AENS.OB).
AENS is, to put it simply, one of only two ethanol companies that have the ability to take the lion’s share of this market.
The company, run by former ADM execs, boasts four very important traits that distinguish it as the ethanol stock to own:
Maintains strategic relationships with EVERY major rail company in North America. (Rail is the most inexpensive way to transport ethanol)
Has the ability to leverage its massive economies of scale to secure 100-car shipments of ethanol. Smaller producers can only use single-car shipments. The annual cost savings from 100-car shipments for AENS – between $7 to 10 million!!!
Management’s commodities expertise gives it a crucial advantage, as these guys can manage the volatility of commodity price risk without the use of outside brokers. Annual cost savings here – as much as $24.5 million!!!
The stock is incredibly cheap. The company’s logistical advantage and commodities expertise makes it a frontrunner for ethanol dominance – yet it’s still completely under the radar, trading for only $2.06 a share. This thing could easily be trading above $5.00 by next summer.
And just to add more fuel to the AENS fire – three days ago, the company announced plans to build another 110-million-gallon ethanol plant in Kankakee, IL.
These 110-million-gallon plants that AENS are building dwarf the typical 40-million-gallon plants that pepper the landscape of so much of the Midwest.
Listen, I know ethanol markets.
I’ve been to the conferences, I’ve met with the agricultural economists, corn lobbyists and politicians and I’ve visited ethanol facilities and met with former ADM hotshots and CEOs in upscale boardrooms in Kansas City and hotel bars in New York.
The fact is, ethanol is happening. You know this.
The government wants it, and the market continues to dictate its growth and success.
But those who continue to chase after anything with the word ‘ethanol’ in it are in for a rough ride. Because when it comes time to deliver, only a select few will be able to pull it off.
Alternative Energy Sources is one of the select few. And it’s the absolute best deal you’re going to get right now in this burgeoning behemoth of a market.
If you’d like to check out for yourself why Alternative Energy Sources is the best bang for your ethanol buck, read my free report on AENS here .
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