personally my feeling is so many sentiment indicators have gotten negative enough that we're probably looking at a strong market counter move higher here sooner then later.....after that move, then yeah probably. a lot of supply coming with the recent vse ipo, the peix secondary(announced Friday afternoon), the Aventine ipo and the hawkeye ipo. of the four peix is the weakest as they've no ability to take advantage now of the record ethanol spreads --- there is a very real chance that by the time PEIX capacity comes online, there will be an ethanol supply glut. the capacity coming online beginning late 2007 is massive and whenever commodity type business sees massive supply increases, spreads/profit margins decrease. vse/adm are the two that are producing the most ethanol right now and into 2007 so they're the two able to benefit now most from these record margins.
I suspect we very well may see all-time highs on all the ethanol plays here in 2006, possibly early 2007 depending on overall market conditions. This peix has become more of a trading stock then anything right now.
a slight stretch but I'd almost equate the ethanol capacity coming on-line with the tanker capacity.....when worldwide demand for commodities shot up following the last economic slowdown there simply wasn't enough tanker capacity to handle the demand. Tanker rates went through the roof and many tanker stocks went up 500%+ in less then a year....well demand has remained strong but a ton of supply has come on-line, dayrates have fallen back significantly and tanker stocks have suffered --- notably those that have suffered worse are the newer tanker companies that came into existence to take advantage of the 'bull' market in tankers and record dayrates. So demand has remained strong and many tanker companies have continued at near 100% capacity for 3 1/2 year now --- however margins have fallen due to the hefty supply increase. sound familiar?
these ethanol companies are real, especially this vse/avr. they're solid operations and they will make very real profits in 2006/2007 and will be producing market share leading amounts of ethanol the next 3-4 years. However historically massive capacity increases in cyclical industries lower profit margins even if demand remains strong.
gasoline refiners purchase nearly all the ethanol being produced in the US --- those refiners are in what is believed to be a peak earning period at 8-12 X's 2006 earnings. These ethanol producers are in what will most likely be a peak earnings period and trading 30-40 X's 2006 earnings(VSE/AVR).
something is a bit off there it would seem. Factor in ethanol capacity will increase much more then legislated demand increases and....well we'll see.
I've an in depth analysis on both avr/vse on my site fwiw:
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