Sign of the Times: Ethanol Boom Goes Bust, Utilities, Energy and Consumer Staples Hit Hard

Six of the biggest publicly traded U.S. ethanol producers have lost more than $8.7bn (£5bn) in market value since the peak of the boom in mid-2006 and the beginning of this month, according to the Financial Times. The newspaper focuses on Aventine Energy (AVR), VeraSun (VSE) and Pacific Ethanol (PEIX), where one of Bill Gates' private investment firms lost millions in 2005.

All of these stocks have seen considerable short covering three to four months. The percentage of AVR's Market Cap out on loan to short investors has decreased from 19% in July, down to 6% now. VeraSun has decreased from 15% in June this year to 6% today, and Pacific Ethanol has dropped down from 16% in July, to 10% today. AVR's graph of its %MCOL is below.

click to enlarge

Despite the weakness in oil price, we see very low short interest in energy stocks. Exxon Mobile (XOM) has less than 1% MCOL, Devon Energy (DVN) has always had minimal short interest but has dropped from 1% earlier this summer to close to zero; while the stock is up sharply.

With growing evidence of difficult economic times ahead, the focus is moving to which stocks in the equity market provide recession proof earnings. Utilities and Consumer Staples are now areas that are often mentioned in the press. United Utilities (UU) in the U.K. has dropped from 24% in July to 3.4% today. July was a two-year high.

Baxter (BAX), 3M (MMM) and Colgate-Palmolive (CL), who have been commonly reviewed as 'recession-proof' stocks as of late, both have minimal short interest, too. Baxter is at 2% MCOL, 3M is at 1%, and Colgate is at 0.5%.

Disclosure: None

Comments

[Bill6:]

Hey Jessica, you failed to mention that all of these stocks have only seen these considerable swings in conjunction with the downturn of the rest of the economy. In fact, if you look at VSE, AVR, and PEIX the day of and day after the rest of the economy went bust, all of these stocks considerably overperformed relative to the DOW, S + P and NASDAQ averages. Currently they are falling with the price of gas, but this is another commodities bounce and these stocks will be up again by election time. The important number is the crush spread, which is very good right now because of the fall in corn prices relative to the price of ethanol. Hardly a "bust." Disclosure? Short?

2008 Oct 22 11:46 AM

[TarCottage:]

I guess the Saudis decided this was the perfect time to pull the rug out from under all the world's alternate energy projects by temporarily increasing the supply of oil so as to eliminate any current competition to raising oil prices in the future!

2008 Oct 22 01:14 PM

[wheels14:]

My biggest fear, well the one I will discuss with all of you, is that $4.10 gas will make $2.50 gas seem cheap. The last thing we need is for the US consumer to start buying SUVs again. This would be a perfect time to raise the gasoline tax. McCain and Obama cant say it out loud, but if you believe our reliance on foreign energy puts the US in a financial and Strategic disadvantage this is the time to do something about it.

Feel free to vent at me now.

2008 Oct 22 06:09 PM

[Joshua Lacey:]

Amen wheels14, couldn't agree with you more! Our dependence on foreign oil has all but destroyed our economy.We are definitely under the iron grip of the whims of OPEC and believe me they don't have OUR best interests at heart. OPEC just cut production again.The high cost of fuel this past year has resulted is record losses of jobs and homes.Sad thing is we have so much available to us in the way of renewable sustainable energy wind, solar, even wave. We have advanced technology available to us with the ability to cut our use of oil such as hybrid cars, electric plug in cars (which btw would cost the equivalent of 60 cents a gallon to drive)We need to put an end our dependence on foreign oil. Our government hands out a stimulus package of 168 BILLION dollars, what did that accomplish? A 3 day shopping spree. Now they are talking about doing it again. Why not invest the billions and billions of dollars in becoming energy independent, something that will benefit our society not just for a few days or weeks but forever? We have the knowledge, the technology what we seem to lack is a government who has enough vision to have a plan. There is an astounding book just out by Jeff Wilson called "The Manhattan Project of 2009" (Energy Independence Now) I got mine on amazon.com. He has a web page as well themanhattanprojectof2... This book is amazing I wish everyone had a copy especially every member of our government

2008 Oct 22 06:28 PM

[sstro:]

I'm bullish on utilities. When the price of oil spiked eariler in the year a lot of them raised prices and I have not heard of them lowering them so profits should be good and everyone needs lights and heat in the coming quarters. We will have to wait and see what kind of handcuffs OPEC has up their sleve on friday. We do need to get out from under that org. but our leaders don't really care about the future all they see or want is what is good for them now and we are just supposed to live with what they decide.

2008 Oct 23 09:45 AM

[Paul Killinger:]

From widely divergent viewpoints, these are some of the BEST comments I've read recently. If you REALLY want the U.S. to do what you all say as regards imported energy, sign up for the Pickens Plan. It's the ONLY way out in any reasonable timeframe.

2008 Oct 23 10:21 AM