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Excerpt from Raymond James strategist Jeffrey Saut's latest essay:

Times are good in the Corn Belt, with factories like Archer Daniels (NYSE:ADM) and Caterpillar (NYSE:CAT) operating at full tilt. Clearly this is being driven by a couple of our macro themes. First would be with more and more people entering the world's economy (read: Chindia), and subsequently per capita incomes rising, people are consuming more "stuff" (grains, meat, energy, etc.). Second would be alternative energy, in this case ethanol (as a sidebar, when I flew into Bloomington, Illinois I saw a plethora of electricity generating "windmills" that were not there a year ago). We have embraced the alternative energy theme, believing the world is at, or near, peak oil production whereby more crude oil will be consumed than can be found. Moreover, as long as the U.S. government subsidizes alternative energy it should continue to have the "wind at its back" (forgive the pun)...

As our alternative energy analyst Pavel Molchanov concludes, "Constrained domestic refining capacity, along with ethanol's intrinsic octane and environmental advantages over gasoline, makes ethanol stocks, in our view, attractive value buys in the alternative energy space. As before, we recognize that this is a contrarian call, and while short-term commodity price fluctuations may produce large swings in the stock prices of ethanol producers, our fundamental bullish thesis is premised on long-term trends. Our top ethanol picks are U.S. BioEnergy (USBE) and VeraSun Energy (VSE), followed by Aventine Renewable Energy (AVR) and Pacific Ethanol (NASDAQ:PEIX)."

Ethanol Stocks 28 5 07

Source: Jeffrey Saut: Four Ethanol Stocks That Will Outperform