We recently published a list of 11 Best Ethanol Stocks To Invest In Now. In this article, we are going to look at where Ultrapar Participações S.A. (NYSE:UGP) stands against other best ethanol stocks to invest in now.
Ethanol, also known as ethyl alcohol, is a renewable fuel that can be naturally produced through the fermentation of sugars by yeasts, or it can be man-made through petrochemical processes. Ethanol can be utilized for various applications, but it is majorly used in the US as a gasoline additive in the transportation sector to enhance fuel efficiency and reduce emissions. According to the latest data released by the US Energy Information Administration on December 18, US fuel ethanol production saw a significant increase of more than 2% during the week ending December 13. At the same time, fuel ethanol stocks experienced a slight decline, while exports surged by nearly 33%.
A Catalyst for the Ethanol Industry
The E15 fuel blend, which contains 15% ethanol was restricted due to concerns about increased smog pollution in hot weather. However, earlier in 2024, the E15 fuel blend was temporarily approved in 49 states for the summer and the US government allowed the year-round E15 sales by 2025 only in certain Midwestern states. These regulatory changes boosted the ethanol industry margins as retailers sought to offer lower-cost fuel to consumers.
On December 17, a US government funding bill included a provision allowing year-round sales of gasoline with a higher ethanol blend, specifically E15. This inclusion represents a significant victory for the corn and ethanol industries, which have long advocated for the expansion of E15 sales to boost demand for their products. The plan also provides credits to some refiners for compliance with the US Renewable Fuel Standard (RFS), a mandate requiring refiners to blend billions of gallons of biofuels into the nation’s fuel supply or purchase credits from those that do. The biofuels industry has welcomed this provision, with Geoff Cooper, President of the Renewable Fuels Association, expressing hope that the funding bill would be swiftly enacted.
CoBank Report: U.S. Ethanol Production to Remain Steady
According to a report by CoBank, published on December 12, the US ethanol production in 2025 is expected to remain largely unchanged from 2024 levels, with the industry facing significant political and regulatory uncertainties. The report highlights that while the US Energy Information Administration (EIA) predicts that ethanol production will average about 1.05 million barrels per day in 2025, the sector is navigating several challenges, including policy uncertainty surrounding the Renewable Fuel Standard (RFS) program, small refinery exemptions (SREs), and the potential impact of tariffs.
The report notes that the incoming Trump administration is likely to take a cautious approach to proposing new RFS renewable volume obligations (RVOs) for 2026-2029, preferring to wait for actions on pending SREs. During the previous Trump administration, 34 SREs were granted for the 2017 RFS compliance year, whereas the Biden administration has not approved any SREs and has denied 79 SRE petitions to date. This contrast in policy approaches adds to the regulatory uncertainty facing the industry.
Despite these challenges, the report identifies some positive trends, particularly in the area of global demand for ethanol. CoBank emphasizes that expanding renewable blending requirements in countries around the world are contributing to a growing global demand for ethanol. US ethanol exports are projected to set a new volume record in 2024, with Canada emerging as the top destination. However, the potential for trade policy changes, including the imposition of tariffs on world trading partners and retaliatory tariffs on US agricultural products, including ethanol and distillers’ dried grains (DDGs), could limit export growth. Additionally, the expansion of corn ethanol production in Brazil may increase competition in the global market, further impacting US ethanol exports.
With the ethanol industry facing a mix of regulatory changes, global demand shifts, and political uncertainties, the sector is poised for significant developments in the coming years. However, the potential for increased global demand offers promising opportunities for growth.
Our Methodology
To compile our list of the 11 best ethanol stocks to invest in now, we scanned renewable fuels ETFs plus online rankings to compile an initial list of 20 companies that are involved in the production, sale, or processing of ethanol. Then we used Insider Monkey’s Hedge Fund database to rank 11 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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).
Ultrapar Participações S.A. (NYSE:UGP)
Number of Hedge Fund Investors: 10
Ultrapar Participações S.A. (NYSE:UGP) is a leading Brazilian conglomerate with a diversified portfolio of energy and logistics businesses. The company through its Ipiranga brand operates approximately 5,800 gas stations across the country and distributes original ethanol and additive ethanol at their gas stations as a standard fuel option.
Ultrapar Participações S.A.’s (NYSE:UGP) commitment to the ethanol business extends beyond distribution. The company is making significant investments in biofuel infrastructure to enhance its production and storage capabilities. Additionally, the company is investing in new technologies and processes to improve the efficiency of ethanol production.
Ultrapar Participações S.A. (NYSE:UGP) is also involved in various collaborative initiatives to promote the use of ethanol and other renewable energy sources. The company is a strong advocate for regulatory changes that support the growth of the biofuels industry and has been actively involved in discussions with the Brazilian Agency of Oil and Gas to improve the regulatory framework for biofuels.
One of the key challenges in the Brazilian ethanol market is the prevalence of illegal practices, such as tax evasion and the sale of adulterated fuels. Ultrapar Participações S.A. (NYSE:UGP) has been at the forefront of efforts to combat these issues, working closely with regulatory authorities and industry partners to promote fair competition.
Overall, UGP ranks 8th on our list of best ethanol stocks to invest in now. While we acknowledge the potential of UGP to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than UGP 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.
