Investopedia: ADM Offsets Weak Volume With Strong Ethanol

With ethanol margins improving in the second quarter and investors increasingly transitioning from the old (poor) crop to the new (good) crop, Archer Daniels Midland (NYSE:ADM) has caught investor attention again, and the stock is both near a 52-week high and up almost 50% over the past year. I do believe that the 2013 U.S. crop harvest will be good for ADM's 2014 handling, milling, and crushing operations, and I do believe ethanol is here to stay. That said, this is still fundamentally a volatile low-margin business and even with the opportunities added with GrainCorp, I would be careful about chasing the shares.

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Seeking Alpha: Matrix Looks To Multiple Growth Opportunities And Better Margins

It's not too hard to make money investing in companies that make things, but successful investing in companies that build things has proven quite a bit more challenging. Not only is there rampant competition in engineering & construction (E&C) to keep a lid on prices, but many a contractor has run into trouble with cost overruns. All told, this is a sector where the relative few companies that earn decent (or good) returns on capital are more than offset by those who fall short - in other words, this is a sector where picking the right company/stock matters.

Maybe Matrix Service (MTRX) is one of those better picks. The company's recent ROICs haven't been super, but nor have they been terrible. What's more, management seems to have a cogent vision for not only growing the business, but doing so in a profitable way.

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Matrix Looks To Multiple Growth Opportunities And Better Margins

Investopedia: Exxon Mobil Looking Steady, But Not Spectacular

It's hard to find too many bad things to say about Exxon Mobil (NYSE:XOM). Not only does Exxon have the best historical returns on capital of the energy majors, the company also has established itself as an efficient converter of oil and gas to cash flow and dividends. Though costs are rising, returns on energy projects are falling, and production growth is not looking very robust. Exxon can still fill a role as a go-to energy major for investors who want exposure to the energy space.

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Investopedia: Robust Spreads Let Calumet Specialty Products Prosper

While many energy companies have spent the last few years running from their refining operations, Calumet Specialty Products (Nasdaq:CLMT) has not only been content to be in the business, but has actively looked to expand its operations. A focus on specialty products such as customized lubricants and solvents has long served this company well, but beneficial spreads have kicked in their share more recently. With an impressive-looking dividend yield and certain advantages to its status as a partnership, Calumet could be a stock worth further exploration from income-oriented investors.

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Seeking Alpha: FutureFuel Looks Undervalued, But Mind The Volatility

For most of the past decade, investors have been badly burned by energy-tech and bio-whatever. In many cases, investors bought into bad business models that were built more on hype than sound economic principles. Yet, throughout that time, ethanol and biodiesel use has continued to grow and the U.S. government has continued to encourage (and in many cases, mandate) increased use of these fuels.

That leaves the very small FutureFuel (FF) as an interesting, albeit very risky, stock to consider. Not only does FutureFuel have a real biodiesel plant up and running, but it uses a different feedstock than most if its competitors. FutureFuel also has a specialty chemical business that not only offsets some of the volatility of the biodiesel business, but also offers growth prospects in its own right.

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FutureFuel Looks Undervalued, But Mind The Volatility

Investopedia: Drought Shrivels ADM's Near-Term Prospects

The outlook for the agricultural sector has changed significantly since the first quarter of this year. While talk was of record corn plantings and a bumper harvest, adverse weather has made drought the word of the summer. As Archer Danields Midland (NYSE:ADM) transitions from the old crop year to the new crop year, the drought is likely to hit this business in a significant way. The long-term potential of ADM is still worthwhile, and investors ought to keep an eye open for overreactions on the down side, but the next few quarters are likely to be difficult at best.

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Investopedia: Team Inc. Making The Most Out Of Maintenance

Right now "weird" may be the best word to describe the market for large-scale engineering firms and many of their customers. While utility, infrastructure and industrial construction have slowed to a crawl, activity is quite strong in the energy sector. On the other hand, not all energy is the same and many companies are trying to figure out ways to get out of operations like refining. As one of only two specialty maintenance service companies with real national coverage, Team Inc. (Nasdaq:TISI) is nevertheless seeing some solid upside from an ongoing maintenance cycle at customer refineries. 

Another Solid Quarter  
Team Inc. has been doing well recently, and this quarter was no exception, though there is definitely some deceleration in the business. Revenue rose 19% this quarter, with 13% organic growth. Across the board, Team's profitability metrics looked solid. Reported GAAP operating income rose about 24% this quarter, with adjusted EBITDA rising 22% and adjusted net income rising 29%. Management also once again raised its financial guidance for the full year.

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Investopedia: Sunoco's Radical Reformation

These are strange days in the refining industry, as more and more companies decide that it's time to go big, go independent, or go home. Several major integrated oil companies have started talking about dis-integrating their refining and marketing operations from their oil and gas exploration activities, and Marathon recently did so - splitting itself into Marathon Oil (NYSE: MRO) (an oil and gas exploration company) and Marathon Petroleum (NYSE: MPC) (a refining and marketing company).


Now it's Sunoco's (NYSE:SUN) turn. The company has been quite active already; selling refining facilities in Oklahoma and Ohio, selling its chemicals business, and spinning out its coke operations. Now the company is taking a larger step further - announcing that it intends to sell its two remaining refineries (both in Pennsylvania) and exit the refining business altogether.

A Logical Step Aside
Apart from Sunoco's long history as a refiner, this decision to exit the refining industry makes a lot of sense. This is a tough business all around - environmental worries make new construction difficult, efficiency requires high ongoing capex, and margins are cutthroat. Making matters worse for Sunoco, the company's Pennsylvania refineries use light sweet crude and have high costs all around because of the feedstock it uses and how it is transported to the refineries. With practically no pricing power, Sunoco has been forced to accept years of losses from this business.



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Investopedia: Darling: Dirty Business, Sweet Cash Flow

Well-known fund manager Peter Lynch once wrote that he often knew he had found an interesting investment opportunity when the company in question performed a service that was unpleasant or sometimes even disgusting. The example Lynch used was Safety-Kleen, a company that built an attractive business from the collection and recycling of oil and other industrial waste products. The same could certainly be said though for Darling (NYSE:DAR), the only publicly-traded company with significant operations in the field of rendering, recycling and recovering the food industry's biological waste products. 

A Solid End to the Fiscal Year 

Darling took a bit of the wind out of its own sails by preannouncing results for the fourth quarter a little while ago. Nevertheless, reported revenue growth of 52% (and organic growth of 33%) is still quite impressive and was quite a bit better than the original projections for the quarter. Likewise, the company's adjusted EPS of 0.22 was not only a bit ahead of updated expectations, but well ahead of the 17-18 cent range in place a month ago.

Although Darling does not include much information with its press release, the company followed its press release with its 10-K. To that end, free cash flow again ticked up for fiscal 2010. Investors should note that free cash flow growth has been trailing revenue growth, but increased amounts of capital expenditures have clearly played a role in that equation. 

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Back To The Future With Ethanol?

This has been a hot summer for ethanol. Prices have been on the march for almost all of this year's so-called "driving season", and actually edged ahead of gasoline for a bit, though gasoline is now on top again. Will this move trigger another round of the "fuel of the future" frenzy and a surge in construction and investment, or is this likely to be just another head-fake in what has been an exceptionally difficult market for investors? 

Why The Move Now?
It is often fatuous to look at a move in a commodity's price and spend a lot of time trying to explain it. Nevertheless, "often" does not mean always. In ethanol's case, it is impossible to look at the move in ethanol prices as somehow wholly separate from a major move in corn over the past year. Although corn prices slid a bit in the first half of the year, they have jumped through the summer and stand at levels not seen since 2008.

On top of that, there is a sizable tax credit to companies that blend ethanol with gasoline. That gives blenders like Chevron (NYSE: CVX) and Valero (NYSE: VLO) incentive to keep adding ethanol to the mix - even in the face of higher ethanol prices. Moreover, since the federal government has no apparent desire to lift the protectionist tax policies that punish cheaper ethanol imports from countries like Brazil (where Cosan (NYSE: CZZ) produces cheaper ethanol from sugarcane), U.S. producers do not have to worry about foreign supply soaking up the demand. (For more, see A Sweet Ethanol Deal.)
 

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