Customer Service 1 (888) 261-2693
Advanced Search

A Play on the Brazilian Ethanol Boom

By Stansberry Research Interview Series
Monday, March 19, 2007

Whether or not you believe in global warming, it's clear that ethanol – particularly sugar-based ethanol – is attaining global importance as an energy source.
 
The biggest player in this market is Brazil, which has converted 40% of its automotive fuel to ethanol. Today, Brazilian motorists can choose between blended (25% ethanol, 75% gasoline) and pure (100%) ethanol at the pump.
 
Brazil began to focus on the alternative fuel back in the '70s, when the oil crises decimated the country's economy. At that time, Brazil imported 80% of its oil. And when the crisis hit, Brazil's GDP growth dropped from 14% in 1973 to 5% in 1975.
 
To make certain this never happened again, the Brazilian government pushed to develop ethanol technologies. The idea caught on, and by 1984, 95% of Brazilian auto production consisted of pure-ethanol vehicles. By 1988, Brazilians were consuming 1.7 gallons of ethanol for every gallon of gasoline.
 
The industry suffered a serious setback in the '80s, when oil prices fell and sugar prices rose. Brazilian producers began kicking up oil production, resulting in a shortage of ethanol. Since most Brazilians were driving ethanol-only automobiles at this point, the shortage ticked them off almost as much as the oil shortage in the '70s.
 
The Brazilian ethanol industry went nowhere for the next 10 years until the "flex-fuel vehicle" – a car that can use ethanol and gasoline interchangeably – hit the market. Since 90% of the country's fuel stations had the infrastructure in place to sell ethanol, the cars were a huge hit. Within three years of their release, four of out every five cars built in Brazil were flex-fuel.
 
Brazil's sugar-based ethanol has the lowest production costs in the world, far lower than the cost of corn-based production in the U.S. Because of this, it's the largest exporter in the world, sending 20% of its annual production abroad.
 
One particular ethanol play you should keep an eye out for hasn't hit the market yet. But it will soon. It's called Brazilian Renewable Energy (Brenco for short) and it's run by Philippe Reichstul, ex-CEO of Petrobras, Brazil's formerly state-owned oil giant.
 
The company is attracting some pretty big names.
 
Vinod Khosla, cofounder of Sun Microsystems, is one. Khosla left Sun in 1985 and has since become a very successful venture capitalist. Khosla is heavily invested in the Brazilian ethanol industry. Brenco is his latest find.
 
Another owner is supermarket billionaire Ron Burkle. Burkle has a history of spinning off ventures for huge gains. Using his investment firm Yucaipa, he turned his $5 million fortune into over $4.3 billion in just 17 years' time.
 
AOL's founder, Steve Case, also owns a stake. And Brenco just completed a private-equity offering of $200 million last week.
 
Regardless of your political slant or your views on global warming, this is a company worth watching. And if you're looking for publicly traded ethanol companies, look in Brazil, where ethanol is already a hit.
 
Good trading,
 
Graham




Recent Articles
Market Notes
The quiet rally in shipping continues... blue-chip oil shipper Teekay Shipping at new 52-week high.
 
Utility companies Constellation Energy, Alliant Energy, Northeast Utilities, and Equitable Resources hit new highs
 
Base metals continue to rise... nickel and tin at new all-time highs.
 
In the news: Wal-Mart gives up efforts to start a bank
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 38.31 +1.4% -0.6%
Gold 138.07 +2.1% +16.3%
Silver 28.60 +2.4% +53.6%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 18.01 -7.1% -19.8%
Gold Stocks 581.56 +3.0% +17.0%
10-Year Yield 3.02 +0.7% -10.7%

World ETFs
Symbol Price
Change
52-Wk
USA 122.89 +0.3% +11.3%
Canada 30.50 +0.2% +16.2%
Russia 21.94 +1.4% +18.1%
India 37.85 +0.3% +22.3%
Israel 16.69 +1.3% +10.8%
Japan 10.64 +0.6% +6.5%
Singapore 13.73 -1.1% +18.8%
Taiwan 14.78 +0.4% +19.2%
S. Korea 57.31 +1.3% +23.4%
S. Africa 71.87 +1.4% +28.2%
China 44.42 -1.4% -0.6%
Lat.America 53.17 +0.7% +8.4%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 137.59 +1.0% +18.9%
Big Pharma 64.14 +0.0% -3.2%
Internet 72.07 -0.1% +23.4%
Semis 16.22 +1.2% +29.4%
Utilities 31.28 +0.2% +1.5%
Defense 18.52 +0.1% +10.6%
Nanotech 10.03 +0.4% +1.6%
Alt. Energy 10.08 +1.3% -3.3%
Water 18.49 +1.0% +14.5%
Insurance 16.14 +0.4% +21.1%
Biotech 20.54 -0.2% +28.1%
Retail 19.70 +0.3% +30.2%
Software 24.79 +0.8% +25.9%
Big Tech 53.87 +0.3% +22.7%
Construction 13.10 +0.9% +15.7%
Media 13.64 +0.5% +26.0%
Consumer Svcs 67.39 +0.2% +24.5%
Financials 55.04 +0.3% +7.4%
Health Care 64.30 +0.1% +2.0%
Industrials 63.54 +0.5% +21.0%
Basic Mat 74.35 +1.1% +25.3%
Real Estate 55.32 +0.1% +25.0%
Transportation 91.77 +0.7% +26.9%
Telecom 22.59 +0.5% +17.8%