Some Ethanol Names Drowning In Their Own Tanks (USBE, PEIX, VSE, AVR)

Some of these ethanol stocks are almost becoming permanent members on the list of 52-week lows.  Some of these were major hi-flyers that went to flying under the radar to merely being hitchhikers.

Pacific Ethanol (NASDAQ:PEIX) is trading down 6% at $9.30, well under the $9.73 close.

US BioEnergy (NASDAQ:USBE) hit $9.09, under the old $9.14 lows but stock is currently just above old low.

Verasun Energy (NYSE:VSE) hit $10.95 today, under the old $11.00 low but stock has recovered almost 2%.  Shares are still down close to 3%.

The issue here is not the relative cost to oil with oil over $80.00 per barrel.  We are not alone in this assessment, obviously with these hitting 52-week lows almost more frequently than they don’t, but there are some serious questions about the validity of ethanol as a business in the manner it is being done today.  Ethanol itself is not bad, but without the government subsidy these companies might not be viable.  In fact, there are some that even argue that ethanol in a "purely on its own" model is not even worth the "pollution savings" because of the energy that has to be used to make it and to transport it.  That is even before the corrosive arguments com into play.

When these how up daily on the 52-week lows it begins to feel like they are being overly picked on.  But 2008 is an election year, and ethanol is arguably somewhat of a political issue.

• Recent downgrades in the sector are adding to this malaise.
• T. Boone Pickens is bullish on oil and on his alternative energy company.
• Recently it was Aventine Renewable Energy Holdings (NYSE:AVR) leading these lower.

Jon C. Ogg
September 24, 2007