We recently compiled a list of the 7 Best Algae and Biofuel Stocks to Buy Now. In this article, we are going to take a look at where BP p.l.c. (NYSE:BP) stands against the other algae and biofuel stocks.
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.
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).
A large turbine generating power from natural gas, smoke rising in the background.
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.
Overall BP ranks 2nd on our list of the best algae and biofuel stocks to buy. While we acknowledge the potential of BP as an investment, 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 BP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. This article is originally published at Insider Monkey.