Editor's note: This column is an update of a portion of the "Mad Money" episode that aired June 14. Click here to read the full Mad Money Recap for that episode.
It's time to take a bow and clear out of the ethanol stocks -- all of them, and as soon as is reasonable. Use limit orders, sell incrementally -- don't just dump everything at once immediately -- but be aware the ethanol fad is done.
( VSE) came public. The stock was up huge from where they priced it. You've gotta sell, and then sell it again. Look, they even had corn outside the
New York Stock Exchange
-- that's no good.
On Mad Money, we want you to raise less corn and more hell, like
Mary Lease, or maybe just raise less corn and more money.
VeraSun is just the first sign you need to sell. Soon
, another ethanol company, will come public, and then
. The first company to take itself public in a speculative bubble goes up big -- that's VeraSun. Then the next, be it Hawkeye or Aventine, which are both smaller, more speculative and in the case of Hawkeye, worse plays, goes up a little. Then the third one out on a speculative run turns out to be a dog -- kind of like
, only not quite as bad. At that point, all of a sudden the market will finally be overwhelmed with sellers of ethanol stocks, and just like anything else, when supply outstrips demand, prices go down.
All these ethanol stocks are up today; now is the time to take profits. Sell into the strength, because it won't last much longer.
Ethanol is in the last stage of a speculative fad's life cycle. I know this because we see it all the time in these hot sectors.
We saw it with the dot-coms in 1999, with the power merchants in 2000, with the oil service names last year and into this year and with solar power. Now ethanol is following the same pattern.
The cycle is familiar. You start with the highest-quality stocks in the sector. Here it was
Archer Daniels Midland
, which I recommended last August, and you could've made a lot of money in it. Then we took up
, the grain elevator guys, and that made you a lot of money, too. Then we took up
, up big today, but
Tuesday night their COO came on the show and told us we'd gotten ahead of ourselves.
The CEO says that and the stock is
You got lucky that we're at the end of this ethanol speculation cycle. See, now everyone else is starting to pile in; that's the time for you to get out.
And now the investment bankers are in on the game. That's how supply gets created; they bring these ethanol companies public, and too many names will eventually spoil the sector because there will just be too much supply. I was out with an ethanol executive the other night who said he was taking more meetings with I-bankers than with customers. That's a bad sign. These ethanol companies are like high-school kids being recruited for big-league ball. It's ridiculous.
So don't believe the hype. VeraSun, up huge today, means sell. If you'd bought the dot-com hype at the height of the speculative bubble, you'd have been crushed. Or just look at solar power since March; the same thing happened there that's happening with ethanol now. The market got overwhelmed with supply, too many solar companies, and the speculative bubble ended. The stocks came down.
You can either go crazy for ethanol now, or gracefully take your profits and wait for the next speculative bubble. I recommend the second course. See, ethanol was never, and probably will never, be all that serious an alternative to gasoline. Right now it accounts for maybe 3% of fuel use in America. You need to use tons of natural gas to make it, and that means any increase in natural gas prices will just crush these ethanol guys. And finally, since it corrodes pipelines, you need to transport it by train or truck or barge, not pipeline.
The only place they ever really implemented ethanol as fuel was in Brazil, but that was all about making money for the sugar-cane industry. There were maybe five families of rancheros who I think practically owned the Brazilian government, the way our government is of, by and for the corporations, and they wanted to make more money off sugar cane, so they made Brazilian autos run on ethanol, which can be made from sugar.
Our corporate oligarchy operates a little bit differently in America. We're more fickle, so the ethanol stocks are going down. I've got nothing against VeraSun; it's a great company with great growth, but that's just not the point.
All these stocks -- ADM, The Andersons, even
-- they're not bad companies. But they're about to stop being hot for good, and the selloff we've had in these last three weeks does not represent a buying opportunity.
Bottom line: When you've got corn out in front of the NYSE, you know that ethanol's become too celebrated and too speculated on to make you more money. It's time to get out of Dodge with ethanol. Sell into strength today, so you won't have to sell into weakness in maybe a week, or a month, but not much longer than that.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider MGP Ingredients to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
At the time of publication, Cramer had no positions in the stocks mentioned.
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