Biofuel Rises 6.6%, other indices mixed (week ending 5/23)

Author: Mark Henwood

Broad market indices (Emerging Markets, EAFA, S&P500) all fell significantly this week. Camino’s PurePlay™ indices were mixed but with Biofuels up sharply. Commodities (DJP) advance 1.6%, up 19.6% for the year.

Biofuel was the story of the week with our 15 member index increasing 6.6%. Four constituents rose more than 20% with Pacific Ethanol (PEIX) increasing 30.6%. Pacific rose dramatically after its 5 AM Monday call where it reported an operating profit. Later in the week the stock dropped after the company reported it announced a preferred stock offering.
Part of the operating profit was USD 2.2 million in derivative gains which I feel should be treated cautiously. After all, a year earlier the company had a derivatives loss. Also, with current assets of USD 121 million and current liabilities of USD 168 million, operating earnings don’t look like they will be sufficient to close the gap so I’m not surprised by the financing. The market reaction seems to indicate a question whether this will be the last round.

Of all the sustainable energy strategies, Biofuel is one of the few, and the largest by far, to offer an alternative to petroleum fuels for transportation. So there seems to be some logic that rising oil prices might lift the stocks of Biofuel producers. As I mentioned I would last week, I ran a quick correlation of Biofuel to a readily investable crude oil proxy (Ipath’s OIL ETN) and found over the last year Biofuel and OIL were correlated a relatively low .17. This is even lower than Solar’s correlation to oil which came in at .26 over the last year. With oil and natural gas being used to produce relatively small amounts of electricity in key solar markets, the only logic I can see for the oil/Solar correlation is high oil prices sustain governmental and consumer support for “alternatives” even thought the alternatives are only loosely related to oil.

One good week hasn’t erased Biofuel’s losses this year and the index is still down 27.5% since Jan 1.

LED & Lighting is a new strategy being tracked at Camino. It consists of 9 companies that pass our screens and are producers of energy efficient lighting using LED, flourescent, or other technologies. I expect to discuss lumens next week.

Mark is the founder of Camino Energy, an information provider specializing in globally traded sustainable energy stocks. He also is an investor in sustainable energy stocks.