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 HF Sinclair (NYSE:DINO) 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 close-up of a gasoline pump nozzle at a service station, revealing the company’s consumer-facing branding.
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.
Overall DINO ranks 3rd on our list of the best algae and biofuel stocks to buy. While we acknowledge the potential of DINO 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 DINO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.