SSK, I can't keep letting you get away with unanswered attacks on this ethanol sector.
You write: "Right now alot of these stocks have a lot of variables, are up a ton, everything has went there way this year with the weather, are trading at significant multiples, getting near market, and in my opinion they should trade at a discount to market, plenty of them carry debt as well."
I don't know what stocks you mention are "trading at significant multiples."
REX, the best performing "pure play" ethanol co., has been growing its earnings by leaps and bounds and has been so phenomenally growing its cash it could go out tomorrow and buy 40% more growth just with its free cash and still have enough cash to buy 40% more growth if it wanted. You act as if it (and PEIX and GPRE) are trading at multiples of 30, 50, or 70 (as growth stocks often do or exceed). And yet REX is trading right now at a P/E of under 14. So I'd say it is already trading at a HUGE discount to fair value.
And it's not true that "everything has gone their way," as you write. Maybe the weather has been a more normal kind of year. But these cos. have had to put up with the overhang of the EPA decision on the RVO for the Renewable Fuel Standard (RFS). REX and others also had to deal with a huge double nat-gas price spike in Feb. And for the past three months there has been the worst downward spiral of DDG prices in 4 years or more. Yet REX still posted its best-ever EPS for Q1 and may surpass it for Q2.
They report Q2 earnings this week (Wed.) but Q3 will provide a much better sense of just how high their "peak earnings" can reach on really low corn prices. But corn prices may head even lower in Q4, and by then DDGs will have very most likely rebounded higher-- and THAT is when you'll really see "peak earnings" as their business model fires on all cylinders for the first time. They could easily do 3.30 EPS in such a "normalized" scenario.
And guess what? Even higher "peak" earnings would come if China adds to the already growing demand from other countries for US-produced ethanol (which would drive up selling prices for ethanol and increase ethanol cos.' profit margins).
I'm not saying that WILL happen, but that's a "positive variable" you've not considered when you seem to suggest all the variables are negative. Also consider another positive variable: the move toward E15 ethanol-gasoline mix in the national fuel supply. That would firm up demand even more. It's happening... Just consult the EPA.gov site.
It's easy to trash the sector in the wake of the severe credit crunch of 2008 and following years and especially in the aftermath of that 50-year worst drought that skyrocketed corn prices for over 15 months from summer 2012 into 2013.... That was an outlier event and it's behind us. Could it happen again? Yes. But if so, it would be easy to exit the sector long before major damage to earnings or stockprice occurred.
On the topic of those two disasters (2008-9 crash and 2012 drought) it should be eminently clear that the strongest companies (REX, GPRE and, barely, PEIX) survived and having survived that can probably survive anything. (PEIX this year has grown very strong, with cash probably outweighing debt at this point in time by a 3:1 factor.)
In any "normalized" kind of environment for the CornBelt or for the ethanol producers, their profit margins are excellent.
Meanwhile, there are other sectors where the "variables" you seem so concerned about are far more obscure / opaque, and more numerous than you or others might care to imagine.
At least with this sector, one can hourly check the prices of commodities and weather patterns.
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