While many of us may think that ethanol companies are not a reliable investment, Barron's asks us to reconsider our thoughts, pointing out to a bright futures for those stocks. People's worries about ethanol companies came as a result of soaring crude oil prices. Thus, the general tendency was to use corn-based alcohol as a substitute for gasoline. The negative reaction was an immediate consequence, and a top official of the United Nations has named ethanol as a "crime against a great part of humanity" as it lead to higher food costs.

Barron's points out three ethanol producers, VeraSun Energy Corp. (NYSE: VSE), Aventine Renewable Energy (NYSE: AVR), and Pacific Ethanol Inc. (NASDAQ: PEIX), which faced difficult time over the past year, although they saw a nice rebound recently after reporting first-quarter operating profits, and Congress passed a farm bill.

Looking ahead, the companies showed optimism related to their further production based on projected 2009 capacity. This takes into account the completion of plants under construction when talking about Aventine and VeraSun. Thus, VeraSun has a projected production of 1.6 billion gallons, Aventine came with 433 million, while Pacific Ethanol has a projected production of 220 million.

Pacific Ethanol (NASDAQ: PEIX), the largest West Coast-based marketer and producer of ethanol, closed at $4.64 on Tuesday. Goldman Sachs said on November 27: "We are adding PEIX to the Americas Sell List, as we believe that ethanol equities will continue to lag the energy sector and broader stock market." PEIX overall option implied volatility of 75 is above its 26-week average of 50 according to Track Data, suggesting larger price risks.

VeraSun Energy (NYSE: VSE) operates as an ethanol producer. VSE closed at $10.14 on Tuesday. Friedman Billings says: "Sources tell us House staff hope to complete draft energy legislation today with hopes of a Floor vote next week. Proposed RFS increases exceed existing expectations for near-year corn ethanol legislative demand increases." VSE overall option implied volatility of 64 is above its 26-week average of 53 according to Track Data, suggesting larger price fluctuations.

Aventine Renewable Energy (NYSE: AVR) a producer, marketer and end-to-end distributor of ethanol. Corn futures are down 0.56% to 398.50 and WTI Crude futures are at 94.48 according to Bloomberg. AVR overall option implied volatility of 75 is above its 26-week average of 57 according to Track Data, suggesting larger price risks.

Daily Options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com

MAJOR PAPERS:

• Citigroup Incorporated (NYSE: C) recently received an unexpected call from a "prominent investment banker" inquiring about a merger with Bank of America Corporation (NYSE: BAC); it was rejected outright, and Citi instead turned to the Abu Dhabi Investment Authority, a part of the Abu Dhabi government, for a $7.5B cash infusion, the Wall Street Journal reported.
• As ethanol demands forced up food prices, and with questions about its capacity to be a significant oil substitute, demand has slowed, according to the Wall Street Journal, which doesn't help the prospects of newly public companies such as VeraSun Energy Corporation (NYSE: VSE) and Pacific Ethanol Inc (NASDAQ: PEIX).
• The Financial Times reported that the SRM hedge fund increased its stake in British bank Northern Rock to 8.5% yesterday, probably in order to block Virgin Group from taking over the lender. SRM and RAB Capital, with a combined stake in Northern Rock of more than 15%, are backing a rival bid for the bank by British private equity fund Oilvant.

OTHER PAPERS:

• A federal agency has subpoenaed Countrywide Financial Corporation (NYSE: CFC), in an attempt to determine whether the company abused the bankruptcy system in two Florida foreclosure cases, according to the New York Times.

WEB SITES:

• MarketWatch's Herb Greenberg believes Lululemon Athletica Inc (NASDAQ: LULU) CEO Bob Meers may have "exaggerated a bit" about his job history. While it's true Mr. Meers was employed by Reebok International, he was not president and CEO of the brand for the length of time he stated, nor was he the president of the Rockport shoe and Greg Norman brands.

MOST NOTEWORTHY: Clayton, PharmaNet Development, Royal Bank of Scotland, Progressive Gaming and WSFS Financial were today's noteworthy downgrades:

• JMP Securities downgraded shares of Clayton Holdings Inc (NASDAQ: CLAY) to Market Perform from Outperform citing lack of visibility in the non-agency MBS market. William Blair also downgraded shares to Market Perform from Outperform after the company's in-line quarter, to reflect lowered estimates and uncertainty regarding a recovery time.
• Jefferies downgraded shares of PharmaNet Development Group Inc (NASDAQ: PDGI) to Hold from Buy as they believe departures of board and management executives have introduced new risk.
• The Royal Bank of Group PLC (NYSE: RBS) was lowered to Sell from Buy at Citigroup, as they are negative on the company's acquisition of ABN Amro Holding NV (NYSE: ABN).
• ThinkEquity downgraded shares of Progressive Gaming International Corporation (NASDAQ: PGIC) to Accumulate from Buy following Friday's announcement that it lost its post-trial motions and will proceed to appeals court in the Webb lawsuit. PGIC will have to post a $20M bond, which is more than the firm expected.
• B. Riley downgraded shares of WSFS Financial Corporation (NASDAQ: WSFS) to Neutral from Buy after they lowered their estimates to reflect the company's higher projected on-interest expense.

OTHER DOWNGRADES:

• Goldman removed Hewlett-Packard Company (NYSE: HPQ) from its Conviction Buy List.
• Calyon downgraded VeraSun Energy Corporation (NYSE: VSE) to Add from Buy.
• Merrill Lynch downgraded Aetna Incorporated (NYSE: AET) to Neutral from Buy.
• Friedman Billings downgraded Baker Hughes Incorporated (NYSE: BHI) to Market Perform from Outperform.