Stocks to buy

The 3 Best Biofuel Stocks to Buy Now

In April of this year, OPEC announced surprise oil production cuts to maintain higher prices, which had fallen since the pandemic’s end. With oil prices being supported in this way, some have called on biofuels to fill the gap. This includes the Biden Administration, which has called on more biofuel production to maintain energy independence. With oil prices elevated and electric cars still a minority on roads, biofuel companies have plenty of room to grow in America’s energy industry.

Even as the electrification of transportation continues, biofuels still have a role to play as an energy of the future. Biofuels can use much of the same infrastructure as oil and burn more cleanly to boot. And many states already mandate gasoline use, while their use continues to expand into other areas as well. There are still certain types of transport for which electric vehicles probably won’t replace internal combustion for the foreseeable future. Biofuels will be needed to fuel those vehicles if we don’t want oil to do so.

The bottom line is that nations want clean transportation, but electric vehicles aren’t ready to fulfill every role. If the nations of the world are going to meet their climate goals and maintain transport infrastructure, they will need biofuels, and biofuel companies, to be ready. So here are 3 of the best biofuel companies to invest in.

Archer-Daniels-Midland (ADM)

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Archer-Daniels-Midland (NYSE:ADM) is a global agriculture and food company and a top-rated biofuel stock. ADM has produced biofuels for over a decade in both Europe and America and has a long history as a top-rated biofuel stock.

ADM sits at the intersection of biofuel and agribusiness. In addition to biofuels, they produce food, feed, and various other industrial products. This diverse business model gives them a lot of leeway and means their stock isn’t so dependent on the oil price remaining high. For an investor who wants exposure to the biofuel industry but isn’t sure where oil will go, buying ADM lets you hedge your bets.

ADM has also branched out into carbon capture and storage. This also makes ADM a good choice for an investor wanting to invest in a company that’s fighting climate change. Not only do their biofuels burn more cleanly than traditional fossil fuels, but they’re also working to capture much of the carbon by-products that are produced.

ADM’s earnings show them to be a strong and stable company overall. In Q1 2023, they had $24.1 billion in revenue and $1.17 billion in net earnings. Those revenues and earnings are also growing, albeit slowly. Overall, ADM shows promise as a reliable investment that can take advantage of the world’s transition to biofuels. And that makes them one of the best biofuel stocks to invest in.

Valero (VLO)

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Valero (NYSE:VLO) may be best known as an oil company, but it has emerged as a formidable player in the biofuel industry. As the world’s second-largest producer of corn ethanol, Valero is a top-rated biofuel stock that should be on any investor’s radar.

Valero produces corn-ethanol, biodiesel, and hydrated vegetable oil production. They’ve also taken part in a joint venture with Darling Ingredients (NYSE:DAR) called Diamond Green Diesel, which has become one of the largest producers of biodiesel in the world. In fact, Diamond Green Diesel is also looking to produce jet fuel. This is key as large trucks and airplanes are a few areas that have struggled to transition from oil to electric power. Bio-fuels could prove necessary to bridge that gap.

Valero’s biofuels division has experienced robust growth, particularly evident in its strong performance during Q1 2023. Revenue in both ethanol and biodiesel segments has grown far more rapidly than revenue from traditional hydrocarbons. This has allowed Valero to remain competitive where other oil companies struggle.

Even as transportation becomes more and more electrified, there will still be a market for internal combustion engines in airplanes and trucks. And as nations struggle to reduce their carbon output, biofuels, especially biodiesel, will be seen as a better and better alternative to traditional fossil fuels. Valero has positioned itself well for this future, which makes it a top-rated biofuel company you won’t want to miss out on.

Green Plains (GPRE)

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While Green Plains (NASDAQ:GPRE) may be a small cap, it has significant upside fueled by its partnerships.

Green Plains has created a joint venture with United Airlines (NASDAQ:UAL) and Tallgrass Energy (privately held) to produce jet fuel from ethanol. With airplanes being a form of travel still innately tied to internal combustion engines, nations want to reduce their carbon cost as much as possible. Bio-jet fuel is a promising avenue, and by partnering directly with an airliner Green Plains has a direct path into this niche.

Additionally, Ancora (privately held) is a large shareholder of Green Plains and has urged it to explore a potential sale, citing a possible buyout price of $50 per share. This represents a substantial upside from the current stock price of $29 per share. While the sale is no more than a suggestion now, some are clearly considering the idea. And such a sale could mean a swift return for investors.

Green Plains is still a riskier prospect than some other biofuel companies. They are much smaller and less diversified than their peers, for one. And their Q1 2023 earnings show a net loss of $66 million, despite revenue growing to $832 million. Green Plains still has $354 million in cash and cash equivalents, so they aren’t at risk of bankruptcy. But they need to show profitability in addition to growing revenue to truly unlock their potential. Nevertheless, their partnerships and the potential of a sale give them a significant upside. So even if they’re volatile, you should keep Green Plains on your watchlist as a high-return biofuel stock.

On the date of publication, John Blankenhorn did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

John Blankenhorn is a neuroscientist at Emory University. He has significant experience in biochemistry, biotechnology and pharmaceutical research.