The equity markets are teetering at new multi-year highs, riding the top of the range until some direction is formed. Overseas the markets have been relatively strong, mostly in part due to the great ZEW German economic sentiment indicator which came in much better than expected. Analyst consensus was calling for 35, while the real number was a whopping 48.2, a three year high. Global investor confidence is high, as there is a widespread belief that 2013 is going to be a great year. Not to be a skeptic, but this much confidence in an economic rebound may be a bit too much too fast, as the financial markets may be sourly disappointed come the summer. Up until the summertime the markets should be able to grind higher with some near-term potential headwinds that may cause a minor pullback. But overall, there may be too much optimism baked into earnings especially with the Sequester threat looming over Washington. Prudent investors do not have to short the market, but cash sometimes may be the ultimate safe choice.
The U.S. Department of Agriculture offered a projection that feedstock demand for biofuel consumption will continue to grow during the next 10 years. Aggregate production in the major producing countries is expected to grow 30 percent for biodiesel and 40 percent for ethanol by 2022. Companies that provide good and unique products in this sector can easily navigate through some expected volatility in the near-term. Dividend paying stocks and companies with unique products may be the best option for the portfolio.
Solazyme Inc. (NASDAQ: SZYM) provides a unique algae-based technology platform that essentially converts carbohydrates into tailored oils. Effectively, the company uses algal biotechnology to produce clean fuels, chemicals, foods, and health science products. The company focuses on commercializing its products into three target markets; fuels and chemicals, nutrition, and skin and personal care. The company’s aim is to replace or enhance oils derived from the world’s three existing sources; petroleum, plants and animal fats. Identifying better and greener ways to replace these items is welcomed by most, and has public and political support.
Earlier this month, Solazyme and Mitsui & Company Ltd (8031: Tokyo) entered into a $20 million agreement to jointly synthesize triglyceride oils for use in the oleochemical industry. Applications for these oils will ultimately be used for renewable, high-performance polymer additives for plastic applications, toiletry products, aviation lubricants and other household items. The agreement makes sense from a developmental standpoint, as both companies have a ton of experience and research producing these types of products. Also, geographically, this helps Solazyme, the San Francisco-based Company and Mitsui, the Japan-based producer, both gain further exposure overseas.
The company is expected to participate in Morgan Stanley’s (NYSE: MS) Technology, Media & Telecom conference. With new and alternative sources of energy, which is the wave of the future, and the cross-pacific agreement with Mitsui, SZYM is expected to shine in the coming quarters. The company is currently trading at $8.70 per share, slightly off its recent high of $9.15, reached a few trading sessions ago. The company is well off its 52-week low of $6.49, which it fell to this past summer. Scooping up some shares of SZYM is a great play on the sector, and is a viable take-over candidate for 2013 at these price levels.