As the White House lobbies to steer government subsidies away from Big Oil toward developers of green alternatives such as biofuels, the prospects of a hot sector awash in new cash could spell opportunity for investors in 2011.
But buyers beware: this embryonic market is R&D-intensive and can turn on a dime as political tides ebb and flow.
Biofuels can be made from many sources – the most common being ethanol, which is derived from corn. At least some level of increased federal spending on green fuel alternatives makes sense – particularly as the crisis in Egypt reminds lawmakers and investors of the volatility of oil.
Oil, gas and coal producers currently receive some $4 billion a year in federal subsidies, but President Obama’s plan to redirect that money to green energy will find stiff opposition in the new Congress. However, even as Republicans seek to cut nearly $100 billion from the budget, it’s likely to include some clean energy investment, perhaps in the $300 million range.
And the White House still has regulations to accomplish goals that the legislative process can’t. Case in point: the Environmental Protection Agency last month raised the percentage of ethanol allowed in vehicles made from 2001 and beyond to 15% from 10%, aiding an industry that has had to contend with double-digit bankruptcy filings since mid-2009.
The outlook for the biofuels industry is brighter this year than it was in 2010. Here are four stocks to keep an eye on in 2011:
1. Archer Daniels Midland (NYSE: ADM). This company’s strong corn processing profits, which reflected rising demand for corn as a means of alternative energy, helped boost the company’s earnings by 30% in its fiscal second quarter. Its bioproduct profit jumped by $161 million to $280 million, driven primarily from a boost in ethanol margins and volumes.
2. Amyris (NASDAQ: AMRS) is producing Biofene, an alternative fuel that is developed from sugar cane. It also has created a synthetic platform that can create biological molecules. The company announced last month it has teamed with Glycotech and Salisbury Partners to convert its renewable farnesene into finished products.
3. Methanex (NASDAQ: MEOH) is the world’s largest supplier of methanol to major international markets. The Vancouver-based company last month reported earnings of $27.9 million in the fourth quarter, due to a rise in methanol prices. Although the company’s Egyptian operation produced its first methanol in November, Methanex closed its Cairo office, evacuated international staff and their families and cut the number of employees at its Damietta plant site in response to the recent crisis in that country.
4. SunOpta (NASDAQ: STKL) is a Canada-based company focused on natural, organic and specialty foods and natural health products. One of SunOpta’s jewels is an 18% stake in biofuel producer Mascoma.
