Can You Invest in Ethanol? 3 Stocks to Consider.

  • Ethanol stocks are on an exponential growth trend with its use case expanding evermore. Additionally, the market has been slow to price many ethanol-related stocks’ potential, subsequently presenting a few lucrative investment opportunities.
  • Archer Daniels Midland (ADM)– The company is well-positioned to take advantage of the agricultural space. Furthermore, with its robust income statement, Archer Daniels presents a wealth of value.
  • Constellation Brands (STZ)– This stock doesn’t provide upstream exposure, but instead, is a “best-in-class” alcoholic beverage play. Beverages could prosper amid pandemic re-openings and STZ will be in the front of the pile.
  • Green Plains (GPRE)– Green Plains is your friend if you’re looking for upstream renewable energy exposure. The company is well-diversified and its stock is undervalued.
Ethanol plant on a farm.

Source: Matt Oaks / Shutterstock

Ethanol prices have surged by more than 60% in the past three years and it’s time to exploit this opportunity by investing in related stocks. Most other commodities have surged due to supply chain issues. However, ethanol is on its way to a multi-year high because of its broad use case. Ethanol is produced from plant materials and is used for various activities, including renewable energy, alcoholic beverages, pharmaceuticals and more. If you’re interested in investing in ethanol stocks, inflationary pass-through needs to be considered. Additionally, it is definitely worth looking toward the upstream part of the supply chain. Furthermore, ethanol’s price movement often front runs many of its related stocks, making it critical to seek relative value.

My screening process here was simple. First off, I searched for upstream companies that exhibit high-quality market exploitation. And secondly, I looked for undervalued assets that have sure earnings potential. I can’t assure you that these stocks will surge; nonetheless, I’m certainly optimistic about them!

Here are three ethanol stocks to consider buying for 2022:

ADM Archer-Daniels-Midland Company $89.05
STZ Constellation Brands, Inc. $244.45
GPRE Green Plains Inc. $29.53

Ethanol Stocks to Buy: Archer Daniels Midland (ADM)

Archer-Daniels-Midland (ADM) logo on sign at office campus

Source: Katherine Welles / Shutterstock.com

Archer Daniels (NYSE:ADM) has a broad presence in the agricultural industry. However, more importantly, it fills a void in the ethanol production and distribution space. The firm recently outpaced its earnings estimates by 49 cents per share, surprising investors and also beating its revenue target by $3.08 billion.

The company’s return on invested capital of 5.91% suggests that it holds a solid market position. Furthermore, as an upstream company, it can pass through its rising input costs more effectively than most other companies, which adds value to its risk-return profile.

Lastly, ADM stock is significantly undervalued. For instance, its price-to-sales ratio of 0.56x suggests that the stock is trading 1.69 times below its fair sales-relative value. Additionally, ADM stock is supported by a momentum trend as it is trading above its 50-, 100-, and 200-day moving averages.

Constellation Brands (STZ)

Constellation Brands logo on a phone screen in front of a blue and purple background. STZ stock.

Source: IgorGolovniov / Shutterstock

It may seem counterintuitive that I’m recommending a mid to downstream ethanol stock, but I had to include Constellation Brands (NYSE:STZ) because it is a “best-in-class” pick. Constellation Brands is a global alcoholic beverages producer, distributor, and marketer with tremendous potential amid pandemic re-openings.

The company recently beat its fourth-quarter earnings estimate by 25 cents per share and subsequently boosted its dividend payout by 5% to 80 cents per share. Constellation Brands will likely receive systemic headwinds from the consumer staples space, making it a well-rounded investment. Moreover, the stock has gathered momentum by trading above its 50-, 100-, and 200-day moving averages.

Ethanol Stocks to Buy: Green Plains (GPRE)

A close-up shot of ethanol with a beaker of corn kernels turned over on its side in front.

Source: Shutterstock

Green Plains (NASDAQ:GPRE) produces and sells ethanol globally. It has an integrated business model in which it supplies both agricultural and energy buyers. I’m tremendously excited about this stock’s prospects, with it recently beating its revenue target by $46.74 million as a consequence of consistent memorandum of understanding conversion.

A massive value add is that the company is well-diversified, which could result in earnings smoothing. In addition, GPRE stock is undervalued with its price-to-sales trading at a discount worth 2.08x and an enterprise value to sales discount of 1.49x. I’m definitely bullish here!

On the date of publication, Steve Booyens did not hold any position (either directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London and is working towards his Ph.D. in Finance, in which he’s attempting to challenge the renowned Fama-French 5-factor pricing model by incorporating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.


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