Nova Biosource Fuels Perking Up

Feb. 1.07 | About: Nova Biosource (NBF)

We profiled one of our favorite alternative energy plays, Nova Biosource Fules (NVBF.OB) back in September of 2006.

Check out Riding the Biodiesel Boom with Nova if you haven’t already. Admittedly, it is a speculative play that declined shortly after our review and has been trading sideways around $2.50 ever since.

However, TheStreet.com recently profiled Nova in an article titled Truly Alternative Energy Stocks That Could Shine. The author interviewed Jack Robinson, founder and president of Winslow Asset Management in Boston. His company has been investing in green energy since 1983 and has built a solid reputation as an expert in this sector. Mr. Robinson mentioned Nova as one of the stocks he believes could truly shine.

Nova’s stock price reacted with a 10% jump the following day and then sat still at $2.75 for a few days. However, today the stock jumped another 10% on 4 times the average daily volume. With a thinly-traded stock such as this, you can usually expect the price to jump on any media exposure as speculative investors rush in trying to get a piece of the next big thing. The price typically overshoots and then rebounds to a more realistic level, but that trend might not hold true in this case.

It is my opinion that one of the biggest obstacles to a rise in Nova’s stock price has been lack of exposure. TheStreet has impressive reach and although the mention of Nova was quite brief, it might have been enough to put some wind under its sails. Regardless, it is worth keeping an eye on the movement of this stock over the next few weeks. With oil prices heading back towards $60, we could see Nova reaching towards the $4 mark once again. That would represent more than a 33% increase from the current level, with downside risk limited to a drop back to $2.50 (17% decline).

Nova recently raised $47 million in a private placement, which should help with their objective of building two to four biodiesel refineries with a production capacity between 120 to 240 million gallons of biodiesel fuel per year. $47 million might not seem like much, but for a company with a market cap of just $330 million, it is a sizable amount of capital to work with.

Here is the portion of the above-mentioned article that references Nova:

Then there’s Nova Biosource Fuel, based in Houston, which can convert fat renderings into biodiesel. Robinson’s not kidding: He says the company could turn the leftover fats from a McDonald’s fryer into pretty clean fuel, saving costs, waste and emissions.

Once again, this is a speculative stock that trades over the counter. It’s currently just $2.37. As they say on Wall Street, at least you know your downside.

The chief executive, 69-year-old Kenneth Hern, is an oil industry veteran: He’s a former executive at Texaco (now part of Chevron (NYSE:CVX) - commentary - Cramer’s Take). And the company last month raised $47 million. It’s busy building relationships with suppliers and customers.