Remember that no politician in their right mind could try and jump in front of the pro-ethanol train. In doing so, they would risk losing the agricultural lobby, angering his constituents, and even being "less environmentally concerned" than the mighty George W. Bush. As a result of these factors, I'm going to leave the anti-ethanol arguments aside from here on and focus on how to profit from the seemingly imminent increase in the United States ethanol mandate. The pure-play on this is Pacific Ethanol (NASDAQ: PEIX).
Pacific Ethanol has certainly had its fair share of excitement. About a year and half ago, the ethanol frenzy was full-on and the stock quickly moved from $10 per share to $45 per share. However, like many irrational, bubble-like trading patterns, this move was proceeded by a fall back to the $12-20 range, a range the stock has been "stuck" in for the last year.
However, I think that an increase in the ethanol mandate is enough to send the stock out of its range, or at least to the top of its range. Due to the stock's significant short position at about 18% of the float, any piece of good news probably will cause a short squeeze, forcing shorts to cover their positions and run for the hills. When short squeezes occur, speculators tend to also buy the stock, thus forcing even more volatility upon the stock.
Since the company is going to continue its impressive sales growth through this year and into next year, that will force analyst into buy ratings. If you watch the markets a lot I think you'll notice that many analysts tend to recommend actions about three months too late -- they like to move from strong sell to strong buy when the stock hits a 52-week high and vice versa.
Don't get me wrong, Pacific Ethanol is a risky stock (the CFO just resigned, very volatile trading). But the potential for an increase in the ethanol mandate, backed by solid operating momentum and large short position, is enough to make me think the stock has a "pop" in it.
Closing Bell: Economic Catapult for Thanksgiving & Black Friday (WMT, TGT, GRMN, GOOG, MSFT)
Deere up on Q4 earnings performance
Reid Hoffman: LinkedIn will go public (at some point)
Reader Comments (Page 1 of 1)
7-21-2007 @ 4:57AM
Charlie Peters said...
Does ethanol policys increase oil profit and oil use?
Clean Air Performance Professionals
7-23-2007 @ 6:24PM
Charlie Peters said...
How about improving the system we have?
Ask for a fuel ethanol waiver allowed in the 2005 energy bill
Fuel ethanol uses lots of water
Audit "Smog Check" to fix the fault in more of the failed cars
Chief Sherry Mehl, DCA/BAR, has never found out if what is broken on a Smog Check failed car gets fixed, never
Improving Smog Check and fuel policy can cut car impact in half in 1 year and save money
About $20 billion in savings in first year
I'm confused about promoting products from offshore rather than improving our system
Clean Air Performance Professionals