TPS Trade Alert – January 24, 2013
January 24, 2013
Recommendation:
Buy Syntroleum (NASDAQ: SYNM) up to $0.52 per share.
Trade Rationale:
Companies with innovative products tend to have more upside potential than companies selling more traditional products and services. But, what’s even better? Companies with innovative products and a pile of cash.
You see, cash gives companies flexibility in how they market their products. Plus, it means they’ll be able to take more chances and cover operating costs for longer.
Here’s the thing…
It’s fairly unusual to find a company with an exciting, innovative product and a mountain of cash that also happens to be trading for under $1.00 a share. After all, a company with those characteristics should be highly coveted by savvy investors.
However, every once in a while, a company slips through the cracks. And of course, it’s our duty to gobble up shares in that company before other investors discover the opportunity.
That’s why we’re recommending Syntroleum (NASDAQ: SYNM).
SYNM develops, commercializes, and licenses its Syntroleum technologies to produce synthetic liquid hydrocarbons. The company’s Syntroleum process involves conversion of carbon containing material into synthesis gas – and conversion of the synthesis gas (syngas) into hydrocarbons.
SYNM’s Synfining Process technology uses the Fischer-Tropsch conversion (a type of gas to liquid chemical reaction) to convert syngas derived from natural gas, coal, and biomass into liquid hydrocarbons. The company can then upgrade those hydrocarbons into synthetic diesel and jet fuels, among other things.
More importantly, the company uses its Bio-Synfining technology for converting animal fat and vegetable oil into renewable diesel and jet fuel. SYNM has partnered withTyson Foods (TSN), in a joint venture known as Dynamic Fuels, to produce biodiesel fuel.
Dynamic Fuels operates a 75 million gallon per year facility in Louisiana. Several major clients are already using or testing the biodiesel, including the US Navy and Alamo(ALG) Car Rental (for shuttle buses).
So why is SYNM’s stock so low with such an innovative product and big name clients?
For one, the Dynamic Fuels plant in Louisiana has had some major issues. Plus, the company is being sued by Neste Oil for patent infringement.
Here’s the thing…
Both situations should be cleared up in the near-term. The company is working through the biodiesel plant issues, and it seems to be on track. And, Neste has already lost one case against Syntroleum. It doesn’t appear to have a strong argument for patent infringement.
Even better, there are two key reasons to like where SYNM is headed.
For one, the company’s biodiesel is being used by Mazda in a Daytona race this month. That’s a great sign and could draw significant attention to the fuel.
What’s more, the recent Fiscal Cliff deal was a huge win for the company. The government has substantial incentives in place for renewable energy companies. And, with the extension of these incentives, SYNM has reported it will receive $23 million from the government for its 2012 fuel production.
Of course, $23 million is a huge chunk of change. And, the company already holds $17 million in cash and no debt. That means they’ll be sitting on $40 million in cash, or over $0.40 per share just in cash value alone.
With the stock trading at $0.42 as of this writing, that means investors are getting the company for nearly the cash value alone. All revenues and future revenues are essentially being had for nothing.
That’s crazy if you consider the company pulled in over $17 million in revenues over the last year alone. And that number should grow considerably in 2013 as new clients come onboard.
And that’s not all…
With the company projected to earn $0.23 per share in profit in 2013, SYNM is trading at just 1.8x future earnings. That’s ridiculously low for any industry, but especially for one with an innovative product and piles of cash.
Now’s a great time to buy shares of SYNM. The depressed stock price won’t remain at these levels for long as the good news starts rolling in. Don’t miss out on this incredible opportunity.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Syntroleum |
| Ticker: | SYNM |
| Recent Price: | $0.42 |
| Market Cap: | $41.3 million |
| Avg. Daily Volume: | 364,268 shares |
Chart:
Category: TPS Trade Alert
