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

by: Data Explorers

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 (NASDAQ: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.

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AVRDespite the weakness in oil price, we see very low short interest in energy stocks. Exxon Mobile (NYSE:XOM) has less than 1% MCOL, Devon Energy (NYSE: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 (NYSE:BAX), 3M (NYSE:MMM) and Colgate-Palmolive (NYSE: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