Pacific Ethanol (PEIX)

**vik589** Mon Dec 12, 2005 5:01 pm

Pacific Ethanol (PEIX)
Got this following excerpt from the energy stock blog at http://energystockblog.com/article/4650

Pacific Ethanol, which is publicly traded, is building sites in the west coast to try to capture first-mover advantage in building out ethanol production capacity in what they see as an untapped region. This points to the fact that much of ethanol production (and biofuel production in general) is a very well-understood, mature process, so the competitive advantages for winning players are more likely to be due to location, feedstock costs, financial engineering, operational excellence, customer relationships, etc., rather than a proprietary technological advantage. Also, the investments tend to be project-oriented by nature. It can make it tough for technology investors (ie: VCs) to participate — with exceptions, of course.

I did some more research and found out the following factors that might have a positive effect on this companies long term value.

1. Pacific ethanols product line currently emphasis clean burning corn based ethanol. The market for ethanol in the United States has grown dramatically in recent years as states across the country have banned MTBE (Methyl Tertiary Butyl Ether), a fuel additive formerly required to increase octane levels of gasoline. Ethanol is the only other commercially viable additive that will bring gasoline into compliance with state and federal clean air regulations.
2. Also the energy policy act of 2005 will require U.S fuel ethanol production to increase to 7.5 billion gallons(28 billion liters) from the current rate of 15 billion liters.
3. Bill gates recently invested 84 Million in this company. Not sure how much of a positive factor that is :-)....prob not much....but still.

I have just recently started researching about alternative fuel companies and their prospects, i am still at the amatuer level when it comes to understanding the long term effects (in terms of investing in them) of these different alternative fuel types. I will really appreciate any and all views...what do you guys think. Thanks

**vik589** Mon Dec 12, 2005 5:03 pm

forgot to mention that production increase of ethanol from 15 billion liters to 28 billion liters as advocated by the energy policy act of 2005 is required to complete by 2012

**blast_investor** Mon Dec 12, 2005 10:37 pm

Hi vik589,

I would avoid a stock like PEIX. This kind of stocks usually have high chance of failure and they can wipe out investors. PEIX does not have revenue or earning and it is mainly a story stock.

Of course, ethanol is an emerging energy industry. Therefore, if it succeeds, the reward may be very high.

Typically venture investors are into this type of company and stocks. But value investors including me tend to be very conservative. We want certainty of making money. Venture investors bet on lots of companies and most of them fail. But one that succeed can reward investors huge amount of profit.

However, venture investing does not offer that much higher reward overall because of high failure rate. There was study that overall venture investing does not offer that much of better return than value investing.

Bill gate certainly is more like venture investor rather than a value investor. In fact, the past stock investment record of Bill Gate and his buddy Paul Allen was not that great. They are great visionaries in technology, but in investment, they may be charity donors that do not care that much about investment returns.