Even if you're squeamish and vegetarian, don't let yourself be grossed out by Darling International, Inc. (NYSE:DAR), a Texas company that takes animal fats and hides, and other byproducts from slaughterhouses, butchers, and restaurants, and renders them into things like tallow and protein meal. It also cleans grease traps at restaurants, and converts the dirty cooking oils into greases that can be reused.
This is a business that's necessary, and it also happens to be in increasing demand as America looks to biofuels for energy solutions. While most biofuel in America comes from ethanol, the demand for biofuel from animal fats is growing quickly, and produced a remarkable growth of nearly 50% in profits and revenues for Darling in the second half of 2006. This demand is only going to increase in the coming years, and I think this one could see substantial growth as it learns to make the most of this newfound opportunity.
This is risky, of course.The year 2005 was very rough, and a company like Darling can be hurt by rising fuel costs and rising commodity costs. And one has to imagine there will be increasing competition as other companies see a chance to make money in this business; just recently, for example, Tyson Foods, Inc. (NYSE:TSN) and ConocoPhillips (NYSE:COP) announced a partnership to make biofuel from Tyson's leftover chicken fats.
Also, investors have already started noticing Darling, and the stock price has doubled over the past six months. But it's still trading below $8, and I think there's lots of room for growth.
Type of stock: A traditional rendering company that is now making lots of money off the growing demand for biofuels.
Price target: I think this one's worth grabbing as long as the stock price is below $8. Just be prepared to hold for a while and to experience some ups and downs as the new biofuels market develops.
DAR 1-yr chart: