VeraSun and Aegean Marine: Two Small Cap Triple Plays

Last week I began looking at two companies with a market cap in the $1 billion range, with plans and operations in place to triple their business in the next few years, but whose stock prices are going in radically different directions. One is in a very old economy, non-global friendly business, and the other is in the renewable energy business. Take a guess which is the hot stock and which is not.

I will start with the company whose share price has fallen by 40% since spring, is in the new economy business of ethanol refining, the company is VeraSun Energy Corp (VSE) (11.01 -0.91 -7.63%). VeraSun is one of the largest pure ethanol producers in the U.S. The company’s plants are located in the midwest, Illinois through Nebraska, to be near their raw materials, corn. Here are a couple of highlights:

It is an efficient, large scale producer, with its plants currently running at 105% of rated capacity. Five new facilities will start production by the end of 2008, increasing production capacity over 300% to over 1 billion gallons a year.

VeraSun Energy has introduced its own branded E85 fuel (85% ethanol, 15% gasoline), and it is currently marketed through 20 of Kroger’s 652 grocery stores. It expects E85 to be 50% of production by 2012.

The company has started processing corn oil from the Distillers Grains left over after the distillation of the ethanol. The oil is an additional revenue source, and the reprocessed Distillers Grains are a higher quality livestock feed source.

The share price has been whacked as the price of corn went from $1.80 a bushel to over $4 before declining to a recent $3.30. VSE had its earnings go from $1.48 for all of 2006, to a loss in Q1 of this year, and $0.19 in Q2. Its estimated earnings for 2008 are $1.10, which gives it a forward P/E of 11.

My thoughtful analysis: The stock has fallen off of the Wall Street happiness wagon, and the share price keeps falling. Acreage planted to corn is increasing, production efficiency is improving, government mandates increased use of renewable energy sources, and the company will increase production capacity by 300% over the next 6 quarters. I think the “analysts” may be underestimating future earnings, and this stock could have a great 2-3 year run.

The other company is the old economy business with the hot stock price is Aegean Marine Petroleum Network Inc. (ANW)(28.1042 +2.1542 +8.30%). Aegean Marine is the corner gas station for ships. It provides fuel and lubricants for all types of ships from five service centers: Greece, Singapore, Jamaica, Gibraltar, and the UAE. It also has a fleet of 13 fuel trucks, or as they are known, bunkering tankers to deliver the product to refueling ships, and two Panamax class tankers for transporting larger amounts of petroleum product.

Here are some notes of interest for ANW:

It went public in December of 2006, and has used the proceeds to start building a fleet of modern double hulled bunkering tankers, and service centers.

Its goals are to add several more service centers, and increase tanker fleet to 44 by 2010.

It has growing profits, and lots of cash.

Aegean Marine went public at $15 a share, and has trended higher with much stronger price increases over the last month. On Friday it received a buy recommendation from Jefferies & Co., and the price shot up 15% to $28. This puts the share price in the pricey 32 P/E range, with a forward P/E of 20 on 2008’s estimated earnings of $1.40.

The quarterly earnings estimates show a nice even stair step, like this is a $80 billion company managing its quarterlies to keep Wall Street happy. I would guess the growth road will not be as smooth as the estimates show, and there will be buying opportunities for this company. That said, the prospects for the next few years look excellent.

I am adding VSE and ANW to my, working on famous, but not to be taken as investment advice, 20 Stock Portfolio. The portfolio is now up to 9 stocks, and is working towards 20.