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Wednesday,
November 12, 2008
(Cont'd from
above)...
Jim (cont'd):
Aventine is down
96.8%. Biofuel
Energy, down
95.8%... and U.S.
Bioenergy? Down only
60.9%, because it
sold itself,
intelligently, to
VeraSun. Thanks to
Wall Street for
those terrific
opportunities to
play ethanol, you're
as good on
alternative energy
as you are on
mortgage-backed
securities
[sarcastic]...
This is how we get a
bottom in a
particular market,
if not capitalism in
general... the weak
players get washed
out, and the last
man standing takes
share, and makes
money when the
environment
improves.
In this case, the
last ethanol man
standing...
unbelievably... was
the first!...
And the last one
is...
Archer-Daniels-Midland
(ADM)...
the largest ethanol
producer in the
world... buy, buy,
buy!
Okay, look. I have
been incredibly
negative on the
stock for a long
time. But now that
we know the next
president will favor
ethanol, and
continue our absurd
ethanol mandate,
that requires 30% of
our corn to be
turned into 3% of
our gasoline, the
competition has been
wiped out, and corn
prices - a big
factor in the
destruction of other
ethanol companies -
have come down huge,
ADM is now a huge
buy.
Alright... I prefer
natural gas a fuel
to ethanol. So I
hope that, in 2012,
a natural gas state
will come before
Iowa in the
primaries... But
otherwise, ADM is
it.
The biggest
difference between
ADM and all the
other broken
competitors is
scale. ADM can't
pass through higher
commodity costs for
corn processing,
although it can for
its other divisions.
Corn processing is
only 10.2% of ADM's
revenues in 2008, so
no matter what corn
prices will do, it
will never wipe this
company out.
This is really a
case where, like on
every college
campus, but
particularly at the
great University of
Iowa, size matters a
lot!...
ADM operates on six
continents in over
60 countries.
Network procurement
includes 328
facilities, and more
than 230 processing
plants around the
world. They handle
wheat, cocoa, oil
seeds and other feed
stocks in addition
to corn. Listen,
people still have to
eat no matter how
bad it gets.
Because of ADM's
international scale
and integrated
business model, it
can change in order
to meet global
agricultural demand.
It can shift its end
products to maximize
profits. So, for
example... ethanol
has become more
profitable to make
than corn syrup,
because of the
biofuels mandate, so
ADM shifts
production from corn
syrup to ethanol.
ADM can profit from
any disruption in
supply... Wheat
crops failed in
Australia and
Eastern Europe this
year... and ADM
moved U.S.-sourced
wheat to those
regions and made
them money. There's
also the meat
factor... Even as
the global economy
slows down, we're
still seeing people
in developing
nations get more
wealthy... When they
get more wealthy,
they eat more meat.
The USDA expects a
1% annual increase
in per capita meat
consumption... more
wheat goes into...
when they eat more
meat... and you need
to feed the cows
that make meat with
grain... and ADM
makes the grain.
Then there's ADM's
bioplastics
division, which I
also expect to be
favored by Obama,
and his very
democrat congress...
The company is
actually building a
bioplastics facility
right here in Iowa.
Bioplastics are used
either as a direct
replacement for
regular oil-based
plastic, or like
ethanol in your gas
tank, in combination
with oil-based
plastics. They're in
plates, containers,
styrofoam utensils,
cups, bottles,
straws and paper
coatings, like the
inside lining of
coffee cups.
Consumption of
bioplastics is
expected to grow
from 122%, from 541
million pounds in
2007, to 1.2 billion
in 2012. I do not
have a lot of
stories that have
that kind of growth
built in. Not in
this market. Not in
this economy...
Here's the bottom
line...
● ● ●
● ●
The Bottom Line!:
Is the time again
right for ethanol
and
Archer-Daniels-Midland
(ADM)?
It wouldn't be if
the weaker companies
hadn't been wiped
out, but they have
been... and Obama's
heading for the
White house... Many
of you have asked me
today, and I get
asked all the
time... Is there an
Obama play? They're
almost all too far
out in the future,
except for this one.
This is an awful
market. Do not
expect to make money
in ADM overnight.
And you definitely
have to wait for a
pullback so you can
buy it at a lower
price, because this
is one of a
thimbleful of stocks
that was actually up
today... it was up
46 cents on an awful
day... If you pay up
tomorrow, you will
regret it, but ADM
is back!
[verbatim recap]
Read Jim's next Segment
here
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