Pacific Ethanol – Cyclical Turn?
Over the years I have had pretty good luck catching cyclical businesses at the turn of a cycle. One of my first really successful investment ideas centered around the turn in copper prices in 2003-2004. I ended up with multi-baggers in Aur Resources and Hudbay Minerals. I caught the move in metallurgical coal in 2007-2008 and saw similar results from Western Canadian Coal and Grand Cache Coal. In 2010 I latched on to a turn in the pulp cycle and saw 3-baggers from Tembec and Mercer International. More recently I took advantage of the turn in trucking with a double from Frozen Food Express and of course YRC Worldwide, where I was able to make 6x my money in about 4 months.
So cyclical businesses can pay off big, but you have to time them right and never forget that they are cyclical businesses; what can seem like very easy come can also be just as easily gone. Nevertheless, the upside can be quite large, because most of these businesses are low-margin commodities where relatively modest changes in prices can have a large impact on company margins.
A Turn in the Ethanol Business?
I’m still in the middle of looking at Pacific Ethanol so take what I’m writing here with a grain of salt. There may be elements of the thesis that I am missing. Nevertheless the idea seems promising and it appears, at least so far, to fit with the theme of a cyclical business on the cusp of a turn. I’m throwing this post out now because the stock is moving quite quickly and I am looking for feedback to fill the holes and solidify the idea for me. Read more
Reminiscences of a Stockblogger 