In this article, we will discuss the 7 Best Algae and Biofuel Stocks to Buy Now.
In today’s world, climate change, in the form of global warming, and increased CO2 emissions in the air have become a serious issue to tackle. Global carbon dioxide emissions climbed to an all-time high of 422 parts per million (ppm) in August 2023, as reported in an article by Insider Monkey, discussing the 25 Countries that Produce the most Carbon Dioxide Emissions.
As such, biofuels have the potential to reduce carbon emissions by 86% when mixed with traditional gasoline fuel, as reported in another article discussing biofuel market.
Biofuels are renewable energy sources derived from biological sources such as cow dung, grain, or sugarcane. The U.S. Department of Energy’s Bioenergy Technologies Office (BETO) is also working with the industrial sector to utilize algae-based resources for biofuel production. Two types of biofuels that are commonly used in the world are ethanol and biodiesel.
Biomass, which refers to plant-based resources, is used to produce Ethanol, which is a renewable fuel. Ethanol can then be mixed with gasoline to generate cleaner energy. It does so by increasing octane and cutting down carbon monoxide emissions.
In contrast, biodiesel is produced from renewable sources such as new and used vegetable oils and animal fats. Biodiesel, a liquid, directly replaces petroleum-derived diesel.
Global Biofuel Industry
According to Markets and Markets, the global biofuel market was valued at $167.4 billion in 2023 and is expected to reach $225.9 billion by 2028 at a CAGR of 6.2%. Biofuel demand is set to grow 6% in 2024 from 2022, with most of the demand originating from the U.S. and Europe, according to the International Energy Agency. The U.S. possesses 1.3 billion tons of biomass feed stock, which can produce over 3 billion gallons of ethanol.
The rising concerns about energy security and the need to reduce greenhouse gas emissions are driving the industry’s growth. Economies are largely dependent on fossil fuels, which are limited in Earth’s crust and are depleting at a faster rate. Thus, biofuel is a sustainable and cleaner alternative. This is driving up the industry’s growth projections, targeting an increase of 38 billion liters over the 2023-2028 period, which represents a 30% growth compared to the previous five-year period, according to IEA.
Thus, with biofuels’ consumption set to grow in the coming years, analysts are seeing a reduction in the transport sector’s oil demand by 4 mboe/d (million barrels of oil equivalent per day) by the end of 2028.
Algae Biofuel Industry
Algae biofuel is produced by using algae as the primary source of energy-rich oils. It acts as substitute for biofuel derived from other crops, such as sugarcane and wood. Its production is based on harvesting and cultivating algae, which is then converted into biofuels. They are widely popular for environmental sustainability as they reduce the carbon footprint.
In 2023, the algae biofuel market was valued at $8.04 billion and is expected to grow at a CAGR of 5.76% in the 2024-2031 period, reaching $12.6 billion, according to estimates from Data Bridge Market Research. The demand is fueled by the support of governments for eco-friendly energy source production. For example, the European Union Commission has supported at least 300 projects related to algae and biofuels will 2023. Moreover, algae are highly efficient, providing twenty times the output of other biofuels on the market, such as those from corn and beet.
Biofuel Market in the U.S.
The USA is the largest producer as well as the largest consumer of biofuels in the entire world. According to EIA, 18.7 billion gallons of biofuel were produced in 2022, and were blended with petroleum diesel and petroleum gasoline for use in vehicles and other applications.
Just like other biofuels, the United States has huge potential for algae biofuels, as the government is planning to produce 5 billion gallons of biofuels from algae by 2030. Thus, the U.S biofuels market is expected to reach $56.04 billion by 2030, exhibiting a growth of 7.9% over the period 2023-2030 (according to estimates from Coherent Market Insights). The government support acts as the backbone of this increased consumption. The U.S. government launched a renewable fuel program back in 2005, to expand the consumption of renewable fuel as an energy source, and to cut down reliance on oil, showcasing the country’s commitment to the cause.
With this, let’s now move on to our list of the 7 Best Algae and Biofuel Stocks to Buy Now.
A technician in a lab coat standing in a cleanroom with energy storage systems in the background.
Our Methodology
To select the best 7 stocks to buy in the algae and biofuels segment, we gathered a list of potential stocks with a significant presence in the overall biofuel industry using online rankings and ETFs. We further narrowed down the stocks based on various metrics, including the financial health, the number of analysts covering the stock, and its expected upside potential. Finally, the stocks were arranged based on the number of hedge funds holding them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
7. OPAL Fuels Inc. (NASDAQ:OPAL)
Number of Hedge Funds Holders: 14
We have OPAL Fuels Inc. (NASDAQ:OPAL) on our list of the 7 best Algae and Biofuel Stocks to Buy Now. OPAL Fuels, Inc. produces and distributes renewable natural gas (RNG) for heavy-and-medium duty trucks. Additionally, it also builds and operates fueling stations focused on natural gas and hydrogen. Headquartered in New York, the company also provides renewable power to utilities.
For the quarter ended on 30th June 2024, OPAL Fuels Inc. (NASDAQ:OPAL) reported revenue of $71 million, representing a 29% increase compared to the same quarter last year. It also registered an EBITDA (Earnings before Interest, Taxes, Depreciation, and Amortization) of $18.9 million. The primary contributors to this growth were improved margins in the fuel service stations segment and increased RNG production. OPAL Fuels Inc. has secured contracts for the latter part of 2024 as well.
According to Adam Comora, CEO of OPAL Fuels Inc.,
“A significant number of our upcoming RIN (Renewable Identification Number) sales have already been contracted at favorable prices and we remain on schedule for completion of our RNG projects as well.”
The company produced 0.9 million MMBtu (Million British Thermal Units) of Renewable Natural Gas (RNG) in the second quarter, marking a 50% increase compared to the same period last year. The company generated $18.7 million from selling RNG as transportation fuel.
According to Deloitte, RNG can displace 4.4% of current U.S. fossil gas demand and 16.5% of core gas demand. This reflects the potential for massive growth for OPAL Fuels Inc. in this segment.
The company is aware of this potential and plans to maintain RNG production between 4.0 and 4.4 million MMBtu by the end of 2024. In collaboration with South Jersey Industries, an energy infrastructure company, OPAL Fuels Inc. has begun constructing of an RNG production facility with a capacity of 0.92 million MMBtu, as reported in August 2024.
Despite the company’s heavy focus on the development of RNG projects, it is facing consistent upward pricing pressure in securing biogas rights which are necessary for RNG production. Investors should be wary of potential sales losses due to intense competition and pricing.
Given the company’s growth prospects and strategic investments, six analysts predict a 121.64% upside in the share price. Moreover, 17 hedge funds are bullish on the stock as of Q2 2024.
6. REX American Resources Corporation (NYSE:REX)
Number of Hedge Funds Holders: 17
Next, on our list of the 7 best Algae and Biofuel Stocks to Buy Now, we have REX American Resources Corporation (NYSE:REX). REX American Resources Corporation, along with its subsidies, is involved in selling ethanol in the United States. It also operates in distillers grains, distillers corn oil, gasoline, and natural gas production and sales.
The company recorded its second-best first-quarter result in Q1 2024, with earnings per share (EPS) of $0.58, compared to earnings of $0.30 per share in Q1 2023. REX reported net sales of $161.2 million in the quarter. The sales value declined year-over-year due to reduced prices for ethanol and related products.
Despite the declining net sales, the gross profit of REX American Resources Corporation (NYSE:REX) increased to $14.5 million in the first quarter of 2024 as compared to $10.2 million in the first quarter of the previous year. This increase was attribute to lower corn and natural gas prices, along with improved production levels. The company reported a strong cash position, with cash and cash equivalents reaching $351.8 million. The company also declared itself debt-free, reflecting strength in the fundamental standing of the company.
REX is also advancing its One Earth Energy Carbon Capture, with the capture and compression facility expected to be completed by Q2 2024. The company is also working to increase ethanol production capacity from 150 million gallons to 175 million gallons per year, with plans to reach 200 million gallons per year by the end of 2024. The company has invested $78.1 million in the project, with the total expected cost ranging between $160 million and $175 million.
According to S&P Global, the demand for ethanol is expected to reach 909,000 b/d (barrels per day) in 2024, up from 896,000 b/d in 2023. Despite the rise in demand, the concerning factor for REX is the falling prices of ethanol as the U.S Grains Council reported a decline in ethanol prices on YoY basis.
However, REX has remained profitable with strong financial performance despite the challenging environment in recent years. Based on these factors, there is an upside potential of 41.23% in the stock price.
5. Adecoagro S.A. (NYSE:AGRO)
Number of Hedge Funds Holders: 18
Next, on our list of the 7 best Algae and Biofuel Stocks to Buy Now, we have Adecoagro S.A. (NYSE:AGRO), which is an agro-industrial company that operates through two major segments. One segment is farming, where the company produces a wide range of agricultural commodities, including wheat, corn, soybeans, and rice, as well as dairy products like raw milk, cheese, cream, cocoa-flavored milk, and chocolate milk. This segment also produces electricity by using cattle biomass as fuel. The other segment focused on the production of ethanol and energy.
Adecoagro S.A.’s gross sales decreased by 2.3% year-over-year in Q2 2024. However, adjusted EBITDA increased by 2.7%, driven by the crop segment outperforming the market and improved dairy operations. Adjusted EBITDA in the sugar, ethanol, and energy segment was $106.9 million, mainly driven by higher crushing volumes year-over-year.
Additionally, improved cost dilution allowed the company to reduce expenses, thereby improving profitability. Conversely, EBITDA in the farming business rose to $37.8 million, reflecting 55% year-over-year growth. Increased farm sales, along with gains in biological assets and agricultural products, were the main drivers of this substantial financial improvement.
In light of its improved financial performance, Adecoagro S.A. (NYSE:AGRO) allocated 49% of the free cash flow generated in 2023 to distribution. This amounts to $86.4 million, including a cash dividend of $35 million. Adecoagro S.A. already distributed a cash dividend totaling $17.5 million in May 2024 and plans to distribute the remainder in November. As a result, strong dividend expectation can lead to a surge in share price.
Declining sales due to increased ethanol production in Brazil and higher selling costs from increased taxation are concerns that investors should keep an eye on. Nevertheless, two analysts have predicted an 18% upside in the share price, as Adecoagro S.A. indicated that the increased production has been absorbed by the market, leading to a recovery in share price. As such, 18 hedge funds are bullish on the stock, with investments worth of $151 million as of Q2 2024.
4. Green Plains Inc. (NASDAQ:GPRE)
Number of Hedge Funds Holders: 29
Green Plains Inc. (NASDAQ:GPRE) produces low-carbon fuels and serves the market in three different segments: ethanol production, agribusiness, and partnerships. The company produces ethanol and renewable corn oil, and it also offers fuel storage and transportation services.
In July 2024, Green Plains Inc. (NASDAQ:GPRE) announced a joint venture with Tharaldson to implement the largest MSC system at Tharaldson’s biorefinery, producing high-quality protein with 40% less carbon compared to competing products. This increased Green Plains Inc.’s total annual production capacity to 430,000 tons.
The company reported a net loss of $24.4 million for the Q2 2024. This is a significant improvement from the previous quarter, where the company reported a loss of $51.4 million in Q1 2024, and from Q1 2023, where the loss was $52 million. The primary driver of this improved performance was the biofuel ethanol production segment, with the company selling 208.5 million gallons in the second quarter. The ethanol crush margin was $22.7 million in Q2 2024, compared to margins of $4.6 million in Q2 2023.
The company’s Interest expenses also declined this quarter due to lower working capital revolving balances. Green Plains Inc. (NASDAQ:GPRE) reported a strong financial position with $225.1 million in total cash and equivalents at the end of Q2 2024.
In June 2024, Green Plains Inc. announced that it has finalized a construction agreement and ordered key equipment to capture carbon at its Nebraska facilities. This facility will enable the capture of biogenic carbon dioxide associated with the production of 287 million gallons of ethanol. Additionally, the company announced that its first commercial clean sugar technology, with 40% less carbon footprint, has begun commissioning.
Given the company’s rapid improvement in financial results, analysts believe it will soon turn profitable. As a result, eight analysts have recommended an upside potential of 98% in the share price, and 29 hedge funds are bullish on the stock. This explains why the stock makes it to our list of the 7 best Algae and Biofuel Stocks to Buy Now.
3. HF Sinclair (NYSE:DINO)
Number of Hedge Funds Holders: 30
HF Sinclair (NYSE:DINO) is an independent energy company that produces and markets a wide range of specialty products and fuels, including gasoline, jet fuel, and renewable diesel. Additionally, it supplies fuel to its branded stations and licenses the Sinclair brand at 300 locations. Headquartered in Texas, the company also provides transportation and storage services in the petroleum sector.
In its 2024 second-quarter result, HF Sinclair (NYSE:DINO) reported an adjusted EBITDA of $405.8 million. Revenue jumped from $7.05 billion in the first quarter to $7.85 billion in the second quarter. The refining business posted an EBITDA of $64.7 million, down from $312 million in the first quarter of 2024. Lower gross margins in both the West and Continent regions were the primary drivers of this significant decline. However, this decline was partially offset by increased sales volume of highly refined products.
According to HF Sinclair’s CEO:”
“Our commitment to delivering safe and reliable operations is reflected in the second-quarter result, as the company achieved better utilization and lower costs per barrel in the refining business”
The company reported significant growth in the renewables segment, registering an EBITDA of $2.2 million for the second quarter of 2024, compared to a loss of $11.3 million in the first quarter. This growth was driven by improved sales volume and feedstock optimization. Volume increased to 64 million gallons in the second quarter, up from 50 million gallons in the first quarter of 2024.
The company’s total cash and cash equivalents reached $886 million, driven by $225 million in operational cash flow during the second quarter. This allowed the company to announce a second-quarter dividend of $0.50 and to repurchase $371.2 million worth of stock.
However, while the market gained about 27% over the past year, HF Sinclair did not match this performance, even after including dividends. This underperformance was primarily due to declining revenue in all major segments.
However, this may present an opportunity for shareholders, as EPS (earnings per share) grew from $0.79 to $1.16 in the second quarter. As a result, nine analysts have predicted an upside potential of 30.94% in the stock price, while 30 hedge funds have put in investments worth of $392 million, as of Q2 2024.
2. BP p.l.c. (NYSE:BP)
Number of Hedge Funds holders: 38
BP p.l.c. (NYSE:BP) is engaged in carbon-related products and services. Founded in 1889, the company has established a strong presence in gas and low-carbon energy, as well as in the trading of renewable and nonrenewable power and production of bioenergy.
BP p.l.c. (NYSE:BP) reported a profit of $2.8 billion in the second quarter of 2024, up from $2.7 billion in the first quarter. This profit came from a quarterly income of $48.3 billion. The gas and low-carbon energy sector reported a reporting a profit of $1.4 billion, down from $1.7 billion in the first quarter. Reduced foreign exchange losses and exploration write-offs partially offset weaker gas trading results during the quarter.
The oil production and operations segment recorded a profit of $3.1 billion, while the customers and products segment posted a profit of $1.1 billion. The customers segment, in particular, saw a $0.4 billion increase in the second quarter, driven by strong performance in Castrol, improved fuel margins, and seasonal demand.
Due to its strong financial performance, the company generated an operating cash flow of $8.1 billion in the second quarter, which helped BP p.l.c reduce its debt to $22.6 billion. This robust cash flow also enabled the company to pay a dividend of $0.8 for the quarter. According to The Guardian, the company plans to return $7 billion to investors through dividends and share buy-backs, following better-than-expected quarterly profits.
In a significant strategic move, BP p.l.c announced its financial investment in the Kaskida project in the U.S. Gulf of Mexico, underscoring its commitment to affordable and reliable energy. The project expected to produce 80,000 barrels of crude oil per day. Additionally, the field has identified renewable resources estimated at 275 million barrels of oil.
In addition to its traditional crude oil operations, the company announced an expansion in Brazil to diversify its biofuel operations by producing second-generation ethanol and environmentally friendly aviation fuel. According to the Environmental and Energy Study Institute, pollution from airplanes and jets account for 10% of the total transportation-related pollution in the U.S. This presents a significant market opportunity for BP in the development of sustainable fuels.
Given BP’s strong presence across multiple sectors, five analysts predict a 22.50% upside potential in the share price. However, investors should monitor the recovery of demand for oil products following maintenance activities. Also, 38 hedge funds are bullish on the stock.
1. Valero Energy Corporation (NYSE:VLO)
Number of Hedge fund holders: 45
Valero Energy Corporation (NYSE:VLO) specializes in petroleum-based and low-carbon transportation fuels. The company operates across three major segments: refining, renewable diesel, and ethanol, producing a wide range of products such as gasoline, jet fuels, and residual field oils. These products are distributed both in bulk and through branded outlets.
Along with traditional energy products, the company produces renewable diesel under the Diamond Green diesel brand and is also actively involved in the supply of ethanol and corn oil to animal feed customers.
Valero Energy Corporation (NYSE:VLO) reported a strong financial performance in Q2 2024, with a net income of $880 million and an adjusted EPS of $2.71 per share. The refinery segment was the primary income driver, generating $1.2 billion in operating income during the quarter. Although ths was a decrease from $1.7 billion in the first quarter of 2024, the sales volume remained robust, averaging 3 million barrels per day.
Valero’s CEO and President, Lane Riggs, stated:
“The company is seeking strength in the U.S wholesale system with sales exceeding 1 million barrels per day in the second quarter of 2024.”
The renewable diesel segment reported $105 million in operating income in the second quarter of 2024, down from $190 million in the first quarter of 2024. This decrease was primarily due to lower sales volume resulting from planned maintenance activities.
The ethanol segment also generated $105 million in operating income, with production volumes averaging 4.5 million gallons per day. Despite a decline in operating income across all three segments, the total net cash provided by these segments reached $1.6 billion.
Valero made capital investments totaling $420 million for maintenance and compliance purposes. In addition to enhancing operations efficiency, the company rewarded shareholders as it announced by announcing a dividend of $1.07 per share.
Valero is the world’s second-largest producer of corn ethanol, operating 12 plants, which solidifies its position as a key player in the global corn ethanol market. According to Fortune Business Insights, the global corn ethanol market is expected to grow at a CAGR of 5.6% through 2030. Valero’s strong financial performance and significant hedge fund holdings, 11 analysts predict an upside potential of 21.63% in the company’s share price.
VLO is the best Algae and Biofuel stock based on hedge fund sentiment. But our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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