Two Small Cap Triple Plays-A Contrast
This week I have been looking at two companies with a market cap in the $1 billion range, plans and operations in place to triple their business in the next few years and stock prices going in radically different directions. One is in a very old economy non global friendly business and the other is in the renewable energy business. Take a guess which is the hot stock and which is not.
I will start with the company whose share price has fallen by 40% since spring, is in the new economy business of ethanol refining, the company is VeraSun Energy Corp (VSE: 0.00 N/A N/A). VeraSun is one of the largest pure ethanol producers in the U.S. The company’s plants are located in the midwest, Illinois through Nebraska, to be near their raw materials, corn. Here are a couple of highlights:
- They are an efficient, large scale producer, with their plants currently running at 105% of rated capacity. Five new facilities will start production by the end of 2008, increasing production capacity over 300% to over 1 billion gallons a year.
- VeraSun Energy has introduced their own branded E85 fuel (85% ethanol, 15% gasoline) and it is currently market through 20 of Kroger’s 652 grocery stores. They expect E85 to be 50% of production by 2012.
- The company has started processing corn oil from the Distillers Grains left over after the distillation of the ethanol. The oil is an additional revenue source and the reprocessed Distillers Grains are a higher quality livestock feed source.
The share price has been whacked as the price of corn went from $1.80 a bushel to over $4 before declining to a recent $3.30. VSE had earnings go from $1.48 for all of 2006 to a loss in Q1 of this year and 19 cents in Q2. Estimated earnings for 2008 are $1.10 giving a forward PE of 11.
My thoughtful analysis: The stock has fallen off of the Wall Street happiness wagon and the share price keeps falling. Acreage planted to corn is increasing, production efficiency is improving, government mandates increased use of renewable energy sources and the company will increase production capacity 300% in the next 6 quarters. I think the “analysts” may be underestimating future earnings and this stock could have a great 2-3 year run.
The company is the old economy business with the hot stock price is Aegean Marine Petroleum Network Inc. (ANW: 27.02 -0.18 -0.66%). Aegean Marine is the corner gas station for ships. They provide fuel and lubricants for all types of ships from 5 service centers Greece, Singapore, Jamaica, Gibraltar, and the UAE. They also have a fleet of 13 fuel trucks, errr…bunkering tankers to deliver the product to refueling ships and two Panamax class tankers for transporting larger amounts of petroleum product. Notes of interest for ANW:
- They went public December of 2006 and have used the proceeds to start building a fleet of modern double hulled bunkering tankers and service centers.
- Goals are to add several more service centers and increase tanker fleet to 44 by 2010.
- Aegean Marine has growing profits and lots of cash.
Aegean Marine went public at $15 a share and has trended higher with much stronger price increases over the last month. Today it received a buy recommendation from Jefferies & Co. and the price shot up 15% to $28. This puts the share price in the pricey 32 PE range and a forward PE of 20 on 2008’s estimated earnings of $1.40.
The quarterly earnings estimates show a nice even stair step, like this is a $80 billion company managing their quarterlies to keep Wall Street happy. I would guess the growth road will not be as smooth as the estimates show and there will be buying opportunities for this company. That said, the prospects for the next few years look excellent.
I am adding VSE and ANW to my, working on famous, but not to be taken as investment advice, 20 Stock Portfolio. The portfolio is now up to 9 stocks, working towards 20.
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Hello Mr Tim
I just found your recent article interesting for me.Any how i read your bio and was happy to know you were a USAF pilot.
I had also a brother who was a pilot on IDF Air Force . He was a pilot on all Israeli jets including Helicopters and Transportation planes which is a very uniqe situation not common today.
He was a colonel.
He retired and was a Captain in El-Al Israei Airlines.
About 10 years ago he got a sudden stroke that killed him immediately. It was a shock to all pilots for he was OK most of the time and he survived all battles and wars here.
I just felt a strong impulse to tell you about my brother whom i admired and even had a great chance not only to fly with him but saw him personally throwing bombs at war.
thank you for the attention