Obviously, this is a contrarian play. If you've read BusinessWeek, The Wall Street Journal, Slate or The New York Times in the last few weeks, you know that things are getting worse in the ethanol patch. Corn ethanol is a boondoggle, there's over overproduction, distribution is bad, cellulosic ethanol is years away. These are all very true, but I think that they'll work these things out. Let's face it, the corn lobby is too powerful to let the money spigot in Washington from being turned off just when things are getting interesting. Ethanol, in some form is here to stay.
So how do you make money from it? First, you have to wait. Let the problems get worse. Don't worry, they'll get worse before they get better. Then, there will be a rash of bankruptcies and consolidation. A few strong players will emerge. Invest in those companies, the acquirers, as opposed to trying to figure out who the acquired will be. Right now, I have my eye on Andersons Inc.(ANDE). This company is already fairly cheap (P/E of 14, P/S of 0.45). Andersons is actually more than an ethanol play; they also sell fertilizer, are in the railcar business, and they also sell home and building supplies. While the rest of the sector has been getting killed for the last year, Andersons is actually up 35% The company has little debt, so I think that it shouldn't have problems buying one its rivals once things really get bad.