• Sat. Sep 24th, 2022

Can you invest in ethanol? 3 actions to consider.

ByMary M. Ward

May 2, 2022
  • Ethanol stocks are on an exponential growth trend as its use case continues to expand. Additionally, the market has been slow to assess the potential of many ethanol-related stocks, subsequently presenting some lucrative investment opportunities.
  • Archer Daniels Midland (ADM)– The company is well positioned to take advantage of agricultural space. Additionally, with its strong income statement, Archer Daniels presents a wealth of value.
  • Constellation Brands (ZST)– This stock does not provide upfront exposure, but rather is a “best in class” liquor game. Drinks could thrive amid pandemic reopenings and STZ will top the list.
  • green plains (GPRE)– Green Plains is your friend if you are looking for upstream renewable energy exposure. The company is well diversified and its stocks are undervalued.

Source: Matt Oaks/Shutterstock

Ethanol prices have increased by more than 60% in the past three years and it’s time to capitalize on this opportunity by investing in related stocks. Most other commodities rose due to supply chain issues. However, ethanol is on track to hit a multi-year high due to its broad use case. Ethanol is produced from plant materials and is used for various activities including renewable energy, alcoholic beverages, pharmaceuticals, etc. If you want to invest in ethanol stocks, the inflationary impact must be taken into account. Also, it is definitely worth looking to the upstream part of the supply chain. Additionally, the movement of ethanol prices often precedes many of its related actions, making the search for relative value essential.

My selection process here was simple. First, I researched upstream companies that exhibit high-quality market exploitation. And second, I looked for undervalued assets that have definite return potential. I cannot assure you that these stocks will increase; nevertheless, I am certainly optimistic about them!

Here are three ethanol stocks to consider buying for 2022:

ADM Archer-Daniels-Midland Company $89.05
ZST Constellation Brands, Inc. $244.45
GPRE Green Plains Inc. $29.53

Ethanol stocks to buy: Archer Daniels Midland (ADM)

Archer-Daniels-Midland (ADM) logo on office campus sign

Source: Katherine Welles/Shutterstock.com

Archer Daniels (NYSE:ADM) has a large presence in the agricultural sector. However, more importantly, it fills a void in the ethanol production and distribution space. The company recently exceeded its earnings estimates of 49 cents per sharesurprising investors and also exceeding its revenue target of $3.08 billion.

The company’s return on invested capital of 5.91% suggests that it has a strong position in the market. Additionally, as an upstream company, it can pass on rising input costs more effectively than most other companies, which adds value to its risk-return profile.

Finally, ADM stock is significantly undervalued. For example, its price-to-sales ratio of 0.56x suggests the stock is trading 1.69 times below its fair value relative to sales. Moreover, ADM stock is supported by a dynamic trend as it trades above its 50, 100 and 200 days. moving averages.

Constellation Marks (STZ)

Constellation Brands logo on a phone screen against a blue and purple background.  STZ action.

Source: Igor Golovniov / Shutterstock

It may seem counter-intuitive that I would recommend a mid-to-downstream ethanol stock, but I had to include Constellation Brands (NYSE:ZST) because it’s a “best in class” choice. Constellation Brands is a global producer, distributor and marketer of alcoholic beverages with huge potential amid pandemic reopenings.

The company recently exceeded its fourth-quarter earnings estimate of 25 cents per share and then increased its dividend by 5% to 80 cents per share. Constellation Brands will likely receive systemic headwinds from the consumer staples space, making it a well-balanced investment. Additionally, the stock gained momentum trading above its 50, 100 and 200 day moving averages.

Ethanol Stocks To Buy: Green Plains (GPRE)

A close-up of ethanol with a cup of corn kernels turned sideways in front.

Source: Shutterstock

green plains (NASDAQ:GPRE) produces and sells ethanol around the world. It has an integrated business model in which it supplies both agricultural and energy buyers. I am extremely excited about the prospects for this stock, which recently exceeded its revenue target in $46.74 million following a consistent conversion memorandum of understanding.

A massive added value is that the business is well diversified, which could lead to smoothing of profits. In addition, GPRE stock is undervalued, with its price-to-sales ratio trading at a discount of 2.08x and an enterprise value discount on sales of 1.49x. I’m definitely optimistic here!

As of the date of publication, Steve Booyens held no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com Publication guidelines.

Steve co-founded Pearl Gray Equity and Research in 2020 and has since been responsible for institutional equity research and public relations. Prior to founding the company, Steve spent time in various finance roles in London and South Africa. He holds a Masters in Investment Banking from Queen Mary – University of London and is preparing his Ph.D. in finance, in which he tries to challenge the famous Fama-French 5-factor pricing model by integrating ESG factors. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, cryptocurrencies, crowdfunding, and ETFs.