Thursday, November 12, 2009

Joe's Portfolio gets Fueled by Syntroleum Corporation

Okay everybody, so maybe my last stock pick (here) hasn't worked out too well..... yet. (Joe Edison, "I didn't fail, I just learned 2000 ways to not invent the light bulb"). Speaking of light bulbs, we're about to head into the dark, cold, winter, where plenty of natural gas will be used for home heating and power. Couple that with a weak US Dollar and UNG should still perform for you even though the ETF has diversified a little and is not completely invested in gas futures now. That's beside the point however - the point here is to make money. That's why Google pays us the big bucks to place ads in margins. So Joe, what's the next stock to double in price? Simple, it's Syntroleum Corporation - stock ticker symbol SYNM. Please do not continue reading if you're not interested in making money, but if you are, turn off the TV, let the dog out, lock the kids in the attic with Balloon Boy, and locate the "buy" button on your computer screen. I can't believe this stock has dropped this low, but it has, so now we get to profit from it. SYNM

Meet SYNM:
Syntroleum Corporation (SYNM) and Tyson Foods Inc (TSN) created a 50/50 joint venture company called Dynamic Fuels LLC. The purpose of this joint venture is to leverage patented technology from Syntroleum to convert Tyson's chicken grease into synthetic biodiesel fuel. Dynamic Fuels LLC is currently constructing a plant in Geismar, LA which is 75% complete now. Construction is scheduled to be completed sometime in February 2010 and full scale production will begin mid-2010. While there are currently facilities producing biofuels from foods/plants such as corn, this is the first large scale plant to produce synthetic biodiesel from waste products. (John, cousin of Joe, one man's trash is another man's treasure) Both Tyson Foods and Syntroleum should benefit from this joint venture, but Tyson has a market capitalization of around 5 billion dollars so a profitable joint venture would have greater earnings impact on a small technology company like Syntroleum with a market cap of under $200 million. Dynamic Fuels already has a contract in place with the US Department of Defense to supply jet fuel for its planes. Click here for more information and a short news clip on Dynamic Fuels LLC.

So how should you play SYNM going forward? It depends on what you think the market will do in the next couple months. There's a strong correlation between the price of oil futures and SYNM, so if you believe Ben Bernanke will continue to destroy the US dollar, it would be a good idea to invest now because we'll soon have rampant Zimbabwe-esque hyperinflation. However, if you think Ben's shell game will flop, global oil demand will stay depressed, the US dollar will stabilize, and commodity and equity prices will crash down again, then you might want to wait. While there's no way to predict the long term future with 100% certainty, we do have some knowledge of what can happen in the short term even in the midst of a stock market crash. Let's turn back the clock to Sept '08. A company called Global Resource Corporation (GBRC) - which extracts oil and gas from petroleum based products such as tires through microwave radiation - finished constructing a large scale reactor in Sept '08. Take a look at the two year graph for GBRC to see how the stock performed leading up to the reactor's start-up date of September 29th 2008. (Dates are at the very bottom of the graph)

As you can see the stock price more than doubled from around $1 at the beginning of September '08 to almost $2.50 by the end. This compared to the Dow Jones which lost around 10% during the same time period. So the stock performed great just before the start-up date, but why did the price crash when production started? No clear answer here, but most likely simply a case of "buy the rumor, sell the news". Long term profitability was in question in the midst of so much uncertainty (Joe Senate Majority Leader in next year's election), so speculators dumped stock soon after production began. The point here is that even if the market tumbles again, SYNM should perform well, especially right before plant completion and large scale production begins. That said, this should be a nice long term hold in Joe's opinion.

So what does this mean for Joe Shareholder? Right now the stock market has ballooned to a 52 week high based on questionable fundamentals. (Joe's fire, leaves burning brightly at the top but no logs underneath) Bottom line, this fire could be doused at any time. So, before plowing blindly into it (JoAnn shopper on Black Friday), and getting trampled at the exits by people trying to get out (JoAnn shopper during Black Friday), and losing all your money, (JoAnn shopper by the end of Black Friday) it might be a good idea to wait and watch this one for a few months and buy any steep dips in SYNM. Joe plans to set "limit" buy marks and enjoy the ride.


  1. I'm still with you on your UNG pick, give it some time. It only has one way to go with the weakening dollar. What do you think of CHNG??

  2. Hey Josh, I REALLY like CHNG. 10% revenue growth in third quarter Year over year! Profit only increased around 3%, but they should be able to improve on that with such strong revenue growth. Can't go wrong with China; and with Natural Gas. Thanks for the tip!


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