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3 Reasons to Buy Solazyme Inc (SZYM)

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When you go out to a restaurant, would you rather read through a menu with limited options or one with exponential potential to send you into a food coma? Perhaps you have more self-control than I do, but I’m sure you would rather see a creative menu with a good selection nonetheless. Chances are you may even pay a little extra for top-quality dishes that use the finest ingredients. If you agree, then you may want to stop into a relatively new restaurant in town with sky-high potential.

You may not be able to eat all of the renewable oils on Solazyme Inc (NASDAQ:SZYM)‘s menu (you can eat these), but that shouldn’t stop you from considering its bright future. It’s no secret that I’ve been one of the more cautious voices on the industry and the company in the past. The truth is that many people don’t understand the industrial biotechnology firm, and few reasons exist to support a market cap much above the current figure, given today’s developments.

While I still want investors and potential investors to acknowledge the risks before they consider the rewards, there is a solid case to be made for Solazyme’s long-term potential. Here are the top three reasons to make space in your portfolio for this sugar daddy.

1. Partnerships aplenty
Solazyme has an impressive track record of selling the capabilities of its platform to larger players in the fuels, chemicals, and nutritionals industries. Investors will want to weigh some partnerships more heavily than others when making a decision, but collaborations inked by the company are one way to vet the potential of its technology. Not to mention, the deals make the company less risky than if it were to go it alone.

The company has upstream partnerships with Bunge Ltd (NYSE:BG) in Brazil, Archer Daniels Midland Company (NYSE:ADM) in the United States, Roquette in Europe, and Mitsui in Japan, as well as downstream refiners such as Chevron Corporation (NYSE:CVX) and UOP Honeywell for fuels. Solazyme has yet to wrestle aside deals in which it receives the bulk of the revenue, but that won’t be an issue for investors as long it is classified as a developmental stage company.

Partnerships with industry leaders can make or break the early goings for any high-risk company. Consider what happened when Archer Daniels Midland ditched Metabolix, or when Codexis, Inc. (NASDAQ:CDXS) got the cold shoulder from Shell. Neither company has yet to recover from its respective setback. If Codexis doesn’t find a major new biofuel partner for its cellulase enzymes this year, it could be out of the market for considerably longer.

2. Sustainable alternative to palm oil
The United States Department of Agriculture estimates that the global production of palm oil reached more than 53 million metric tons in 2012. The problem with the tremendous growth is that although sourced naturally, palm oil isn’t very sustainable. Vast rainforests have been cleared throughout the world to make room from palm plantations.

Solazyme realizes that it won’t be taking a stab at any sizable part of the palm oil market anytime soon, but it doesn’t have to. Global companies ranging from (previous development programs with Solazyme) to have sustainability goals in place for their products and have been increasingly criticized for using palm-sourced products. Once Solazyme ratchets up production in the next several years, the world’s most image-conscious companies will have a sustainable alternative to palm — although they may have to fight over the limited quantities available.

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