Biofuels aka Organic Oil: Big Risk, Bigger Opportunity
Nihar is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I despise filling up my car with overpriced gasoline, and I would prefer cheaper biofuels. I don’t mind the idea of using a burning fluid in my car, but I would just like it to be easily available, sustainable, and renewable. I don’t think that is asking too much, but perhaps I just have very high standards.
Everything related to energy is getting unnecessarily expensive. Thankfully for my car and my desire to travel, there are a few companies working on synthetic fuels. There is a lot of money to be made in cracking this, but finding the companies with the best technology is critical. Companies need to pace themselves; before trying to solve all the world's problems they need to start incrementally. In fact, most businesses in this sector are still struggling to scale up production in order to provide a large volume of fuel at an acceptable cost. First, look over some players in this sector, then think about the risks and further research.
Coming of Age with Potential
KiOR (NASDAQ: KIOR) has nothing right now. With zero revenue the only thing that matters is how much cash KiOR has to fund operations. Cash levels currently sit at a troubling $100M, which is a little less than long-term debt; and what little money the company has is declining quickly.
The wisest use of its cash would be to get its production facility up and running. Production was due to start in September, but with no big announcement that the facility has been opened we can only speculate if there has been a delay or if something is being kept quiet. A real announcement might help the stock price rise, which is fine if you're a short-term trader. If you are more long-term you need to see the viability and profitability of the production.
I will be waiting for news, or an earnings call to evaluate what is going on. However, production is just coming online, which could provide a good boost. Personally, I am focusing on the long-term view. If KiOr successfully creates a viable biofuel that can replace gasoline, then the sky would be the limit. What more is there to say about a company that has no other operations? I am watching this one closely, but I have a ton more research to do about biofuels. I really could use a PhD in chemistry about now.
Stopping Car Corrosion One Blend at a Time
Gevo (NASDAQ: GEVO) already has production, but things are not looking so good. I point to this company as a cautionary tale for those contemplating a position in KiOR. I am not saying do not invest in KiOR, but before you jump in you need to be aware of all the risks. Mainly, the risk is your entire position.
Gevo is low on cash, and I am not sure how long it will be able to continue without somehow getting more. Debt might be tricky since its ability to pay is questionable. Gevo makes butane from biomass that can be blended into gasoline in place of ethanol. It has the benefit of being less corrosive and packing more energy than ethanol.
Speaking of ethanol, that stuff is awful. It is corrosive and has less energy than the gasoline it replaces. Hopefully, Gevo can pull itself out of the fire. I think their business is a necessary one, but it is not a company I would invest in. The technology and concept are great, and I hope someone jumps on it. I'll take a pass on Gevo though.
Conclusion
KiOR takes the victory so far in the biofuels sector for me. There are a ton of companies I still have to look at and a lot chemistry papers to read. It is still pretty crazy risky, but that is a trait of the entire biofuel industry. Another stock I wanted to put on the list but I am going to leave off by design is Syntroleum. You can Google it, but I left it off because it is below $1 currently. It might be worth looking at if you're a risk taker though. There have been some problems, but one of its goals is synthetic jet fuel up to military quality. That is big for both military and civilian purposes, but it's not for the buy-and-hold crowd…or even the mostly-sane crowd.
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