This 1 Crucial Trait May Determine The Winner Of The Biofuel Wars

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Commenting on the Unilever deal, Goldman Sachs’ analysts noted that the contract signing was the “long-awaited major customer event that could start to put some of the bear concerns around demand visibility to rest.” These analysts, who have a “buy” rating and a $14 price target, see Solazyme’s revenues climbing to $491 million by 2015.

Equally important, the company may generate $120 million in earnings before interest, taxes, depreciation, and amortization (EBITDA) by then, according to Goldman. The analysts note that another major deal announcement (with The Dow Chemical Company (NYSE:DOW)) may also be in the offing.

On the flip side, KiOR appears especially vulnerable, as the company will likely need to raise an additional $500 million over the next 18 months to build out the production facilities it will need to reach its break-even point — a true chicken-and-egg conundrum.

My colleague Andy Obermueller has spent a great deal of time researching this industry for his Game-Changing Stocks advisory. He thinks the least well-known stock in this group, Dyadic International, actually holds some of the greatest industry promise. The fact that the company is committed to staying cash-flow positive is a real plus, as far as I am concerned.

Risks to Consider: Some of these companies appear ill-equipped to raise yet more capital, which could lead to a run on their stocks as cash balances dwindle. 

Action To Take –> It’s clear that this industry has made real technological process and revenues are finally taking off as new plants come on line. But that doesn’t necessarily translate into operating profits. So it’s wise to scrutinize each of these businesses for their potential EBITDA generation, based solely on current contracts and production facilities. By those measures, only Solazyme and Dyadic appear to have sustainable business models.

P.S. In his newest report, my colleague Andy Obermueller is predicting that a tiny company could rise up next year to kill the gasoline engine. Our previous predictions have made investors 89%… 92%… 293%… and even 310% gains in a year. To hear our latest, including a bizarre plant from the Midwest may end America’s dependence on foreign oil, click here.

– David Sterman

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