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Tickers in this Article: ADM, AVR, MRO, VSE
The U.S. has been an insatiable consumer of oil, particularly over the last 50 years, as its economy has steadily expanded. In recent years emerging economies with large populations, such as India and China have been making vast purchases of black gold. The problem with all of this wonderful economic growth is that oil is a finite resource. But the good news is that a solution could be found in alternative fuels, such as ethanol. (To learn about the coming energy crisis, read Peak Oil: Problems And Possibilities.)

Is Corn the Next Oil?
Ethanol is considered to be a cleaner burning fuel that can be made from an entirely renewable source - corn. Ethanol has received a great deal of attention in recent years due to swelling oil prices. However, it has not enjoyed mainstream popularity for three reasons:

  • It's time-consuming and somewhat costly to produce.
  • There are ethical issues surrounding the conversion of food producing land into fuel producing.
  • Many argue it is easier to import oil. (To learn about these issues in greater detail, read The Biofuels Debate Heats Up.)
The fact remains, however, that the growing worldwide demand for and limited supply of oil seems to necessitate the eventual development of an alternative fuel, such as ethanol - if for no other reason than to reduce America's dependence on foreign oil. Investors who are so inclined can get in on the action by taking positions in companies that develop ethanol and/or that would benefit from its demand.

Companies Involved in Corn-Based Fuel

Company Market Cap
Archer Daniels Midland (NYSE: ADM) $18.6 B
Aventine Renewable Energy (NYSE: AVR) $285.8 M
Marathon Oil (NYSE: MRO)
$32 B
Verasun Energy (NYSE: VSE) $970.6 M
Data as of market close July 31, 2008


Based in Illinois, Aventine Renewable Energy Holdings (NYSE:AVR) is a producer of ethanol. It also distributes biodiesel. According to the company's website, in 2007 it "supplied almost 690 million gallons of the Country's ethanol needs."

What piques my interest the most about the company is that its been turning in some pretty good numbers as of late. In fact, in the first quarter ending March 31, Aventine earned $10.8 million (26 cents a share) not counting a non-cash charge. That was north of the 8 cents a share that the Street was expecting. The strong quarter can be credited to sales growth and management's efforts to keep costs in check.

On July 31, 2008 after the closing bell it released its second quarter numbers. As reported by Reuters, "Excluding the loss from auction-rate securities, the company earned 16 cents a share." That's good news because the Street had been expecting 12 cents a share. The downside however is that it appears its quarterly revenue of approximately $601.6 million did fall shy of the roughly $611.6 million the Street had been expecting.

Despite this Q2 revenue miss, Aventine is currently expected to earn 38 cents a share in its fiscal year 2008 and 47 cents a share next year in 2009. That's a decent expected rate of growth of over 23% and makes this stock an attractive play for investors looking to get into the ethanol game at this point in time.

Bottom Line
Ethanol is still in its infancy, and its success is not guaranteed. The rising cost of oil has fueled demand for alternatives. The above-mentioned companies have a great opportunity to take advantage of this long-term move toward increased use of ethanol as a source of fuel.

For more on how oil supply can affect your investments, check out Peak Oil: What To Do When The Wells Run Dry.

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