Ethanol Stocks Poised To Gas Up (VSE, AVR, PEIX)
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This week's Barron's had a bullish piece on three ethanol producers: VeraSun Energy (NYSE: VSE), Aventine Renewable Energy (NYSE: AVR) and Pacific Ethanol (Nasdaq: PEIX). Although, ethanol is being vilified for bringing up food costs, it could produce a tidy profit for nimble investors.
Barron's noted that VeraSun, Aventine and Pacific Ethanol are all trading below book value and Barron's feels they could have a strong year. Ethanol stocks have fallen on hard times and have dropped significantly from their 52-week highs. VeraSun Energy is down 61% this year, Aventine Renewable Energy is down 59%, while Pacific Ethanol (PEIX) has fallen 60% year to date.
Ethanol stocks recently got a boost after all three of the above companies reported Q1 operating profits, and Congress passed a farm bill, over a presidential veto, that preserves most of the government's ethanol subsidies.
Barron's feels the rally will continue as the stocks are depressed, the businesses are profitable and the companies generally trade below the replacement cost of their ethanol plants. However, it does say ethanol stocks are not classic value plays, as the companies have a lot of debt. Ethanol producers are still profitable despite the high corn prices of $6 a bushel of corn.
To conclude, Barron's notes ethanol may be slightly controversial because of the subsidies, efficiency, rising food costs. However, the ethanol industry has Washington behind it and its ability to help Americans save on gasoline will only help grow the use of ethanol. Since the ethanol industry is not going away anytime soon, it may be a smart idea to gas up on stocks like Aventine, Pacific Ethanol and VeraSun before its too late.
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Barron's noted that VeraSun, Aventine and Pacific Ethanol are all trading below book value and Barron's feels they could have a strong year. Ethanol stocks have fallen on hard times and have dropped significantly from their 52-week highs. VeraSun Energy is down 61% this year, Aventine Renewable Energy is down 59%, while Pacific Ethanol (PEIX) has fallen 60% year to date.
Ethanol stocks recently got a boost after all three of the above companies reported Q1 operating profits, and Congress passed a farm bill, over a presidential veto, that preserves most of the government's ethanol subsidies.
Barron's feels the rally will continue as the stocks are depressed, the businesses are profitable and the companies generally trade below the replacement cost of their ethanol plants. However, it does say ethanol stocks are not classic value plays, as the companies have a lot of debt. Ethanol producers are still profitable despite the high corn prices of $6 a bushel of corn.
To conclude, Barron's notes ethanol may be slightly controversial because of the subsidies, efficiency, rising food costs. However, the ethanol industry has Washington behind it and its ability to help Americans save on gasoline will only help grow the use of ethanol. Since the ethanol industry is not going away anytime soon, it may be a smart idea to gas up on stocks like Aventine, Pacific Ethanol and VeraSun before its too late.
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