The Sleuth
Before the Biodiesel Boom
April 24, 2006

By 2020, there will be one billion cars worldwide.

According to the Wall Street Journal, that adds up to one car for about every six and a half people in the world, and more than 25% more cars and light trucks that are on the road right now.

While this might leave you stranded in a few extra traffic jams over the next 14 years, some more important questions come to mind. Mainly, how will these cars be powered?

For the past month, I’ve been writing to you about the rise of ethanol. (Feel free to check out the series at the Sleuth’s archives if you missed it: http://www.pennysleuth.com/alerts.html).  Today, we’ll take a look at another alternative fuel and what its impact might be on personal transportation: biodiesel. And you’ll also get a chance to check out some tiny companies in the biodiesel industry that will have tremendous growth opportunities over the next several years.

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The New Diesel

At Agora Financial’s monthly editors meeting Thursday, I spoke with Outstanding Investments editor Justice Litle about whether diesel hybrids will emerge as a more viable source of private and commercial transportation in the United States.

His answer was a resounding yes. Diesel hybrid vehicles and biodiesel fuels will gain their own market shares, and it will be technological improvements that make this possible.

And like ethanol, you don’t need crude to make biodiesel. Animal fats or soybean oil and even waste food oils (think of the vats of this stuff cooking those fast-food French fries) are used to make the fuel. Biodiesel advocates will tell you that advancements in the process will allow biodiesel facilities to use almost any fat or oil to make the fuel within five years (now, most use soybeans). 

Justice offered me an example of popular vehicle on the roads today: the gasoline-electric hybrid. In their early stages of commercialism, these hybrids were terrible, inefficient machines, Justice said. But the technology for hybrids has been improved, and the vehicles now not only run better, but they are getting better gas mileage as well.

These same trends will shape the future success of diesel fuel as we embark on the age of expensive energy.

Justice even took the time to discuss diesel in the January issue of Outstanding Investments, writing that diesel is superior to conventional gasoline because the fuel releases less carbon dioxide than regular gasoline and diesel engines get 30% more miles per gallon.

So why haven’t we all been driving cars with diesel engines for the past 50 years? Well, for quite a while, the bad overshadowed the good. Old diesel engines are notorious polluters (nitrous oxide is one of the culprits), not to mention loud. But now with gasoline prices reaching new highs on what seems like every day of each week, the U.S. is looking at diesel in a whole new light.

Diesel Nation?

As it turns out, America’s love affair with gasoline has left us a bit behind the rest of the world when it comes to diesel vehicles.

For instance, Justice notes that about half of the cars on the road in Europe are powered by diesel engines. The diesel revolution in Europe began almost a decade ago, because its citizens have been dealing with high fuel taxes and global warming concerns.

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And some states have taken to biodiesel, adding to its legitimacy here in the U.S. Minnesota has had a biodiesel law on the books since last year that requires all diesel fuel sold in the state to contain at least 2% biodiesel. A similar regulation in Washington State will take effect in late 2008.

And just check out the positive environmental effects biodiesel can have (submitted by an alert Sleuth reader): When using pure 100% biodiesel, there is a 70% reduction in carbon dioxide, 100% reduction in sulfur, 65% reduction in particulate matter, and 55% reduction in volatile organic compounds and carbon.

However, converting an entire modern country from gasoline vehicles to diesel or diesel-hybrid technology won’t happen overnight, which is probably why ethanol stocks are getting their moment in the sun right now and biodiesel companies are looking like much more speculative plays. 

So you are presented with a unique opportunity now to watch some of these tiny biodiesel companies grow into the next hot stocks on Wall Street. Consider this the ground floor of biodiesel investing, and be sure to keep your eyes open for these small companies going public over the next few years.

Here are a few biodiesel stocks I’ve come across recently. Remember, these are tiny companies right now, so it would be in your best interest to thoroughly research the businesses and the biodiesel market before you invest.

Biofuels Corp. (BIFUF: Other OTC); Recent price: $3.00; 52-week range: $1.50- $4.45. Biofuels Corp. -- which also trades on the London Stock Exchange under the ticker BFC -- is in the process of building its biodiesel processing plant on the north east coast of England. 

Nova Oil Inc. (NVAO: OTC BB); Recent price: $7.25; 52-week high: $9.15. Nova currently has two full-scale biodiesel production facilities under construction, with a reported combined production capacity of more than 30 million gallons per year.

Earth Biofuels Inc. (EBOF: OTC BB); Recent price: $2.55; 52-week high: $2.90. Earth Biofuels’ first production facility in Mississippi can produce 2 million gallons of biodiesel a year. Its second facility in Oklahoma (currently under construction) will be able to produce 10 million gallons of biodiesel a year.

In 2005, President Bush visited a biodiesel facility in Virginia, making him the first president ever to make a visit of this kind. He has also endorsed the development of biodiesel in numerous speeches, calling it “one of our nation's most promising alternative fuel sources.” 

If that’s any indication of success, biodiesel has a long, bright future ahead of it.  

Best,

Gunner

P.S. Drop me a line at thesleuth@agorafinancial.com if you’d have any questions, comments or an alternative energy stock that has grabbed your interest. I always read the mail, and I’ll do my best to respond to your e-mails in a future edition of the Sleuth.


P.P.S. With Justice Litle at the helm, Outstanding Investments is able to track the most profitable trends that shape today’s market. Just look at these open positions in his portfoli This oil recommendation is up more than 580%...a shipping play is up 31% and ready to skyrocket...and his WORST performing precious metals play is up more than 32%.

Now you can read Justice’s latest predictions by following this link...