TPS Trade Alert – November 26, 2014
November 26, 2014
Recommendation:
Buy Gevo (NASDAQ: GEVO) up to $0.60 per share.
Trade Rationale:
From a forward-looking perspective, renewable energy is easily one of the most important industries. And, no subset of renewable energy is as vital as renewable fuels.
You see, no matter what you believe about oil, there’s one thing no one can argue with…
At some point, demand for oil will exceed supply.
How and when this happens exactly is still up in the air. But we do know oil is not a long-term solution for global energy and fuel demand.
Oil isn’t just expensive (regardless of the recent drop in price), it’s also dirty and causes plenty of political drama. The vast majority of people on the planet will be far better off if we could use some other fuel besides oil.
That’s where renewable fuels come in. Alternative fuels come in many forms. Some consider naturals gas as the most viable alternative to oil. Others believe hydrogen fuel cells are the answer. Of course, electric vehicles are already a big deal.
And then there are biofuels.
What makes biofuels so interesting is that they’re generally based on something we already grow and produce en masse. Technically, a biofuel is a fuel that contains energy from living organisms, such as plants.
Certain plant and organic-based materials can be converted to energy using heat or chemicals. The most common biofuels are ethanol in the US and biodiesel in Europe.
As biofuels gain in usefulness and popularity, the companies producing them are catching the eyes of investors. One such company is Gevo (NASDAQ: GEVO).
GEVO is a renewable chemicals and advanced biofuels company. The company has developed alternatives to petroleum-based products using synthetic biology and chemistry.
Here’s the deal…
GEVO produces isobutanol, a versatile platform chemical for both liquid fuels and petrochemicals. In other words, isobutanol has broad based market applications and can be used by several industries/companies.
First off, isobutanol can be used as a gasoline blendstock just like ethanol. It can help refiners meet their clean air obligations. It can also be processed further and used to make jet fuel, synthetic rubber, plastics, and polyesters.
What’s really advantageous about isobutanol is it can be used as a drop-in ingredient in both fuels and chemicals. For example, you can just drop it into a gasoline powered engine and it will work just fine. That’s not true for something like liquefied natural gas or hydrogen – the equipment is totally different.
Even better, isobutanol can be made from common crops such as sugar cane and sweet sorghum. That’s about as plentiful and renewable as it gets. Moreover, the EPA has already approved isobutanol as a fuel additive.
And that’s not all…
Gevo isn’t just a development company, it’s already successful generating revenues from its products.
In fact, third quarter revenues came in at $10.1 million. That’s a massive increase over last year’s $1.1 million in the same period. Much of the gains were due to ethanol sales.
However, Gevo is more than just an ethanol producer. The company is also developing a Formula 1 racing fuel and selling drop-in chemicals products. Plus, Gevo just signed a deal with a Florida company to build a plant with an isobutanol capacity of 200,000 metric tons.
From a balance sheet perspective, GEVO is in reasonable shape. The company has $14 million in cash compared to $39 million in debt. However, the current ratio of 2x paints a relatively healthy picture.
Perhaps more importantly, despite the huge increase in sales and production capabilities, GEVO is trading at just 0.8x book value. There’s no way this company should be trading less than it’s worth on paper!
We feel Gevo is a no-brainer opportunity. Buy the shares at ultra-low prices here, and wait for the surge.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Gevo |
| Ticker: | GEVO |
| Recent Price: | $0.48 |
| Market Cap: | $47.6 million |
| Avg. Daily Volume: | 987,526 shares |
Chart:
Category: TPS Trade Alert
