When I was about six years old, my folks sent me to the YMCA during the summer months.
I loved it!
Essentially, my day consisted of waking up, eating sugary sweet cereal and spending about eight hours building forts, jumping on trampolines, playing baseball and climbing trees.
The only thing I hated was swimming.
You see, I actually learned how to swim at the YMCA. But it wasn’t easy.
The very first lesson I had, I accidentally slipped into the deep end, went under and panicked.
Of course, it only took about three seconds for the instructor to come and get me.
But it took me another two years before I had the courage to venture back into the pool.
And while I was forced to stay in the shallow end with kids that were now younger than me, all my friends were diving off the high dives, playing Marco Polo and racing in the lap pool.
My irrational fear left me stranded and angry while everyone else was having a blast!
Now bear with me, because I do have a point.
You see, over the past few months, we’ve seen some incredibly bullish indicators for the ethanol market. (And I’ll get to those in just a moment.)
But because last year’s correction wreaked havoc on ethanol stocks, many investors are cowering in the shallow end, afraid to swim--even though a good portion of the risk in this market is manufactured by doom and gloomers and those who have something to lose every time another gallon of the stuff is produced.
Don’t get me wrong.
The ethanol market still has hurdles to clear.
There are feedstock issues, logistical issues, efficiency issues. Things that do present challenges to the industry.
And coupled with the freefall many of these stocks took last summer, at the moment the ethanol pool seems to have been vacated.
All that’s really left is a boatload of institutional money and practically every U.S. politician looking to keep his job!
Perhaps they know something Joe Investor doesn’t!
Who still loves ethanol?
In 2006, venture capital funding for environmental technologies nearly doubled, to $1.28 billion. Of that $1.28 billion, $423 million went to ethanol and other vehicle fuels designed to reduce our dependence on oil.
Institutional money has been loading up on ethanol over the past few years. Even after last summer’s correction, big investment firms like Piper Jaffray and Goldman Sachs continued to pour millions into renewable fuels.
We know politicians love ethanol too.
From the proposals on the Hill calling for as much as 60 billion gallons of renewable fuels by 2030, to individual states like California, Minnesota and Maryland pushing their own renewable fuel requirements--across the board and across the aisles, lawmakers are embracing ethanol like never before.
And keep in mind--when the first Renewable Fuel Standard (RFS) was passed in Washington, ethanol stocks soared.
When the increase of the RFS gets passed next time, many of these stocks will soar again.
NASA's 30-Year Energy Project Now Ready to Flood the Market
In 1978, NASA scientists confirmed the largest energy source imaginable. It's capable of generating enough power to exceed the world's annual electrical demand. . .seven times over. . .every single day.
Today, almost 30 years after its discovery, a small California-based energy company is finally bringing it online. Details.
The question is, will you wait until the last minute and chase a few pennies? Or will you load up now, while the share prices make sense . . . and clean up in the long term?
Do my charts scare you?
Pacific Ethanol (PEIX:NASDAQ) is an ethanol company that soared in early 2006. But once the correction took hold, the stock tanked. Investors became skeptical of ethanol, and even today the stock is trading below $16 a share.
In May 2006, the stock went as high as $44.50 a share!
And Aventine Renewable Holdings (AVR:NYSE), the ethanol company that went public last summer, performed a freefall from just under $41 to a low of $15.05.
Take a look:
This was a company that many believed would be a big gainer in the ethanol market.
Ethanol stocks deflated across the board in 2006. And they needed to. They were trading at levels that made absolutely no sense.
But now we’re starting to see energy investors snooping around the ethanol market again . . . looking to pick up a few bargains.
Thanks primarily to Washington, a lot of the ethanol stocks that so many investors have been afraid to even look at since last summer are going to ramp up again in 2007.Sure, the charts look scary . . . but look at some of the recent financials from companies like Pacific Ethanol and Aventine.
Aventine reported last week that its quarterly net income increased to $12.8 million from $4.5 million the year before, and sales surged from $288.3 million to $428.9 million.
And just yesterday Pacific Ethanol announced that net sales for 2006 increased 158%, total gallons sold increased 94.5%, and gross profit margin increased to 11% in 2006 from 3.6% in 2005.
The company has total cash and liquid securities exceeding $109 million, plus it just obtained a $325 million credit facility.
To date, the company’s Madera plant has been its claim to fame. But last year Pacific Ethanol acquired 42% of Front Range Energy LLC and will also have its latest plant in Oregon completed by the end of the second quarter 2007.
The industry is moving forward--despite corrections and despite temporary obstacles.
And the experienced ethanol companies--the ones that know how to manage commodity risk, have logistical and technological advantages and seasoned management in place--are the ones to own in 2007.
For more on these companies, as well as updates on the ethanol market as a whole, join the people already reading our free e-letter here .
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