In this piece, we will take a look at the ten best biofuel stocks to buy now. If you want to skip our introduction to the biofuel industry, then take a look at 5 Best Biofuel Stocks To Buy Now.
Courtesy of advances in transportation, power generation, and manufacturing, modern day human society is significantly different from the living conditions and standard of life experienced by people living in the pre industrial era. Humans can now travel to all corners of the world easily, churn out thousands of products a day, warm their homes, and easily access warm water.
At the heart of all of these living upgrades are fossil fuels. Whether it's electricity or transportation, most systems use fossil fuels to generate power and create energy. This reliance has not been without its drawbacks, the biggest of which is climate change. While petroleum fuels have an immense amount of energy that is typically released through combustion, the by products of this combustion end up harming the environment. Sulfur based fuels cause toxic acid rain and other kinds of smoke cause breathing disorders and global warming - which often has catastrophic consequences in the form of natural disasters.
This makes shifting away from fossil fuels tricky, since removing them from the global economic equation will simply sap economies of productivity while continuing to rely on them might not leave a planet that's worth living on. One way in which engineers and companies are seeking to balance out the requirements of high energy internal combustion fuels and stay environmentally friendly is by using biofuels. Biofuels, for those out of the loop, are fuels that are derived from renewable biological products, such as cow dung, grain, or sugar cane. The biggest advantage of this is that if the production methods are streamlined and are developed to support mass production, then humanity can simply produce its own fuels for as long as it likes and not worry about depleting petroleum reserves.
At the same time, biofuels are also cleaner burning than their petroleum counterparts. For instance, consider data cited by the Department of Energy. This shows that ethanol, a common biofuel that is mixed with gasoline in quantities that represent as much as 83% ethanol, has the potential to reduce carbon dioxide emissions by as much as 86%. The DoE also cites a study by the Department of Agriculture to share that the U.S. can reduce its gasoline usage by as much as 30% by growing biomass feed stocks to produce ethanol without using additional agricultural land. The U.S., according to DoA, has 1.3 billion tons of biomass feed stock which is sufficient to produce more than 3 billion gallons of ethanol.
Biofuels are also making their way to one of the biggest polluters of the modern world, the airline industry. According to Europe's clean transport campaign group Transport & Environment (T&E), emissions from aviation have grown faster than those from any other transportation medium as they have more than doubled in the three decades between 1990 and 2019. It also warns that the emissions could double again between 2019 and 2050 if trends are left unchecked. To highlight the scale of emissions from aircraft, the body shares that if business air travel in Europe was cut by 50%, it would be equal to removing 16 million cars from the road.
Naturally, sustainable jet fuel is quite popular in the industry and the media due to its potential to not only help the planet but also enable airlines to keep their flight manifests intact and meet the growing requirements of global air travel. There are several kinds of sustainable jet fuel, which differ primarily on the basis of the feed stocks used in their production. These feed stocks can vary from alcohol, ethanol, algae, waste oils, biomass, and even synthetic production processes. But naturally, since the production processes for sustainable jet fuel are immature when compared to the traditional naphtha or kerosene based variants, their costs of production are also higher. Data from the International Energy Agency (IEA) shows that HEFA aviation biofuel costs roughly $1.20 per liter to produce on average, while kerosene jet fuel is significantly cheaper at just 29 cents per liter.
As to what's happening in the biofuels industry right now, particularly as the world wrestles with another oil price shock, here's what the management of OPAL Fuels Inc. (NASDAQ:OPAL) had to say during the firm's second quarter of 2023 earnings call:
One key development in the quarter, which we were very pleased with, was the final set rule published by the EPA in June.
This final rule strongly supported cellulosic biofuels and the use of renewable natural gas as a transportation fuel. For OPAL Fuels, this gives us confidence in strong and less volatile D3 RIN pricing for at least the next 3 years and further validates our vertically integrated business model, which is best positioned economically and strategically to deliver our growing RNG production base into the highest value and growing end market. Specifically, the final rule resulted in higher compliance targets of D3 RIN volumes that must be purchased by obligated parties and extended these targets through 2025. These higher 3-year targets, which provide multiyear visibility of D3 RIN demand not only give the industry a strong investment signal but also provide the potential to sell production forward for multiple years.
Post the final set rule, D3 RIN prices have risen from under $2 per RIN in early in the year to recently trading just above $3. With the improvement in RIN prices, we sold some credits from our existing inventory, which we had previously elected to hold leading up to the EPA’s ruling in June. In the second quarter, we sold approximately 5.7 million RINs at an average price of roughly $2.80. We continue to sell RIN credits from our unsold inventory in the third quarter at prices in excess of $3.
So, which are the best biofuel stocks that hedge funds are buying? We took a look and some notable names are NewMarket Corporation (NYSE:NEU), Green Plains Inc. (NASDAQ:GPRE), and KBR, Inc. (NYSE:KBR).
To compile our list of the best biofuel stocks to buy, we first made a list of the 14 largest biofuel companies in terms of market capitalization that also trade on U.S. exchanges. Then, the number of hedge funds that had bought their shares during Q2 2023 was determined through Insider Monkey's database of 910 hedge funds and the top ten stocks are as follows.
10 Best Biofuel Stocks To Buy Now
10. Ecopetrol S.A. (NYSE:EC)
Number of Hedge Fund Investors In Q2 2023: 10
Ecopetrol S.A. (NYSE:EC) is a Colombian company headquartered in Bogota, Colombia. The firm makes biofuels through its Petrochemicals and Biofuels divisions. A state run company, it is currently eyeing a big boost from the government which is considering making it a party to all of Colombia's offshore wind power plants.
As of Q2 2023, ten out of the 910 hedge funds part of Insider Monkey's database had bought Ecopetrol S.A. (NYSE:EC)'s shares. Out of these, the firm's biggest shareholder is Paul Marshall and Ian Wace's Marshall Wace LLP since it owns 1.2 million shares that are worth $12.8 million.
Ecopetrol S.A. (NYSE:EC) joins Green Plains Inc. (NASDAQ:GPRE), NewMarket Corporation (NYSE:NEU), and KBR, Inc. (NYSE:KBR) in our list of the best biofuel stocks to buy.
9. Montauk Renewables, Inc. (NASDAQ:MNTK)
Number of Hedge Fund Investors In Q2 2023: 11
Montauk Renewables, Inc. (NASDAQ:MNTK) is an American firm based in Pittsburgh, Pennsylvania. It captures methane from the atmosphere and converts it into renewable natural gas (RNG). Despite having missed analyst EPS estimates in all four of its latest quarters, the firm is expanding its biogas production footprint by opening a new facility in California.
By the end of this year's second quarter, 11 out of the 910 hedge funds polled by Insider Monkey had held a stake in the firm. Montauk Renewables, Inc. (NASDAQ:MNTK)'s largest hedge fund investor is Jeremy Hosking's Hosking Partners due to a $5.8 million stake.
8. FutureFuel Corp. (NYSE:FF)
Number of Hedge Fund Investors In Q2 2023: 11
FutureFuel Corp. (NYSE:FF) is a biofuel company that makes and sells biodiesel and other blends. The firm's second quarter earnings results saw it report a $9.9 million loss, as the firm explained that some revenue was not recorded by the time that the quarter ended.
After digging through 910 hedge funds for their June quarter of 2023 shareholdings, Insider Monkey discovered 11 FutureFuel Corp. (NYSE:FF) investors. Jim Simons' Renaissance Technologies is the biggest stakeholder among these through its $12.9 million investment.
7. REX American Resources Corporation (NYSE:REX)
Number of Hedge Fund Investors In Q2 2023: 11
REX American Resources Corporation (NYSE:REX) is a pure play ethanol producer headquartered in Dayton, Ohio. The firm's shares are rated Strong Buy on average and analysts have penned in a $7 upside based on the average share price target.
As of June 2023, out of the 910 hedge funds tracked by Insider Monkey, 11 had bought and owned the firm's shares. Out of these, REX American Resources Corporation (NYSE:REX)'s largest shareholder is Jim Simons' Renaissance Technologies since it owns 892,215 shares that are worth $31 million.
6. OPAL Fuels Inc. (NASDAQ:OPAL)
Number of Hedge Fund Investors In Q2 2023: 12
OPAL Fuels Inc. (NASDAQ:OPAL) is another RNG company and one that also enables trucking companies to shift from diesel to the environmentally friendly fuel. It's another stock that is rated as a Strong Buy on average by analysts, and the firm beat second quarter EPS estimates by a wide margin.
12 out of the 910 hedge funds surveyed by Insider Monkey had held a stake in OPAL Fuels Inc. (NASDAQ:OPAL) as of Q2 2023. Along with NewMarket Corporation (NYSE:NEU), Green Plains Inc. (NASDAQ:GPRE), and KBR, Inc. (NYSE:KBR), it is a top biofuel stock.
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Disclosure: None. 10 Best Biofuel Stocks To Buy Now is originally published on Insider Monkey.