Renewable Energy Group Inc (REGI), Clean Energy Fuels Corp (CLNE), FutureFuel Corp. (FF): How the Top Biodiesel Stock Crushes the Field

3. Focus on efficiency
A combination of factors plays a role in efficiently producing biodiesel. FutureFuel Corp. (NYSE:FF), which owns an annual capacity of 59 million gallons to complement its niche chemical business, relies heavily on location. The company’s two biorefineries don’t have a nationwide infrastructure to aid in getting product to the market and are dependent on rail and barge access. Despite the FutureFuel Corp. (NYSE:FF)’s amazing progress is improving its process — annual capacity jumped from just 35 million gallons in 2011 to 59 million gallons today — the company admits that its relatively small operations may cease to exist given changes in feedstock prices, government mandates, and tax credits.

REG obviously has much more extensive operations than FutureFuel Corp. (NYSE:FF), but has leaned on efficiency to mitigate market conditions as well. The company’s facilities have been upgraded to run on multiple feedstocks, which include processed oils (“first generation,” easier to convert) and crude oils (“second generation,” more difficult to convert) such as used cooking oil and poultry fat. That should allow REG to combat price spikes in one feedstock, such as soy oil, by switching to another, such as yellow grease. Couple that with its burgeoning network, and it’s easy to see why the company leads the pack in efficiency.

Foolish bottom line
Being a well positioned leader is a self-feeding growth mechanism in this industry. While smaller producers mothball facilities when market conditions get tough, REG comes swooping in to purchase and upgrade less-than-perfect biorefineries. That is, after all, how the company acquired its last several production facilities. If you’re still skittish about investing in biofuels, that is understandable. But you should know that biodiesel is nowhere near the point of saturation of corn ethanol, and it doesn’t compete with farmland used to grow food.

Whatever your concerns, I think there is a solid case to be made for a long-term investment in the top biodiesel stock. Growth remains intact for several years, and major efficiencies are still working their way through the network, which will compound over time. There is always the risk of losing the tax credit, but it won’t spell disaster for a company as established as REG. What are your thoughts on the company? Let me know in the comments section below.

The article How the Top Biodiesel Stock Crushes the Field originally appeared on Fool.com and is written by Maxx Chatsko.

Fool contributor Maxx Chatsko has no position in any stocks mentioned. Check out his personal portfolio or his CAPS page, or follow him on Twitter, @BlacknGoldFool, to keep up with his writing on energy, bioprocessing, and biotechnology. The Motley Fool recommends Clean Energy Fuels.

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