Best Stocks to Make Money Off Ethanol

This new cost and capital scenario will nonetheless benefit the larger companies in the sector that have the market position and capital to grow either organically or through mergers and acquisitions. It will also benefit the companies in the agricultural, transportation and other areas that service this growing activity.

How to invest in the ethanol business.

Stick with the larger ethanol producers. Here are the top three international-scale producers, ranked by ethanol production capacity expected for 2008.

1) VeraSun Energy (VSE) is the largest publicly traded ethanol stock. Now that its merger with US BioEnergy is completed, the combined entity will have capacity to produce 1.64 billion gallons of ethanol annually.

2) Archer Daniels Midland (ADM) ranks as the second largest producer of ethanol with 1.4 billion gallons of installed capacity coming online in 2008. Ethanol is not a large business at ADM yet, but the company's $1 billion in cash on hand and multibillion-dollar balance sheet can certainly make a difference. According to ADM management, "We're devoting a lot of time and energy to this area (ethanol). We're not talking about something 10 years down the road. It's on the front burner."

3) Cosan (CZZ), through its subsidiaries, manufactures and sells of sugar and sugar cane-based ethanol, primarily in Brazil. It is Brazil's largest ethanol producer with a low cost profile, and the world's largest exporter of sugar cane. For a free LatinCapitalMarket.com stock report on Cosan, the leading international ethanol company, click here.

Find stocks that will benefit from ethanol production, transportation and other services.

Companies that provide fertilizer, seeds and equipment to the agricultural sector will be huge winners, and we are likely to see the big-name stocks continue to benefit from the forces we discussed.

One way to do this is through a mutual fund that holds the largest agricultural stocks.

Last year, a new ETF came out that does just that. It's the Market Vectors Agribusiness (MOO). The top five stocks in this portfolio represent 40% of the holdings, and the fund's holdings list reads like a Who's Who in global agriculture. IT holds Monsanto (MON) and other leading names, with 40% of its portfolio in non-U.S. stocks.

MOO is a good fund for general agriculture, but you may want to focus more on ethanol or agriculture in the Americas.

My preferred way to invest in ethanol providers may be to find the stocks in this portfolio that service both U.S. and Brazilian producers of ethanol. Four stocks immediately stand out as plays here. They were up an average of 11% last week and merit special mention.

1. Agco (AG) makes Massey Ferguson equipment, and 16% of its business comes from South America, primarily Brazil. Revenues from that segment were 16% of total revenue last year and growing at a 65% annual rate. Overall earnings per share are expected to grow 22% next year.

2. Bunge (BG) engages in the agriculture and food business. It has operations in Latin America, North America, Europe, and Asia. Over 25% of revenue is earned in Argentina and Brazil, and another 24% comes from the U.S. Overall earnings per share are expected to grow 11% next year.

3. Mosaic (MOS) is a fertilizer company that does business in Latin America. As an alternative, you might consider Potash (POT). These two high-flying stocks are up 335% and 235% respectively over the last 52 weeks and continue to climb. Large swings in prices prove that they are still cyclical stocks.

4. Monsanto sells seeds everywhere, with 19% of revenues from Latin America and growing at a 23% annual rate. Overall earnings per share are expected to grow 17% next year.

These four stocks posted on average gain of 102% during the past 52 weeks and show positive earnings growth prospects for the coming year and the next. This is an example of how focusing on these U.S.-based companies that provide required products and services to the Brazilian ethanol industry can pay off. These four stocks have exceptional balance sheets, positive earnings momentum and solid future market opportunities

Investing in ethanol stocks requires looking beyond the list of U.S. producers to see where the real money is being made.

MON, MOS BG and AG: Latin Agriculture Stocks Gone Wild!

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