This Oil Stock Has Incredible Opportunities

Someday, somehow, we'll figure out how to wean ourselves off foreign oil. When that day comes, there will be seismic shifts in the geopolitical landscape of the world.

At the same time, there will be a group of investors who make out like bandits -- having put their money down on the company that leads us to that day.

Let me introduce you to a company that's wisely positioning itself to one day be that company.

But first, some context
I'll talk about the specifics further down, but to really appreciate what's going on, I think a quick metaphor is in order.

I once read that when the University of North Carolina was built, the architects decided not to build any sidewalks; they just planted grass throughout the campus. For two years, students plotted their own courses across campus, leaving well-grooved paths in their wake. After a while, it became obvious where the main arteries were. The architects were called back and commenced paving sidewalks where they knew students would use them.

Though there might have been some muddy April walks to class those first two years, it was an incredibly simple and smart way for the school to spend money.

The stock I'm introducing to you today -- Solazyme (Nasdaq: SZYM  ) -- is taking the same type of approach with its breakthrough technology in the world of oil.

What it does
The company, which IPO'd earlier this year, is in the business of taking low-cost plant sugars -- like sugarcane, switch grass, corn, and even forest residue -- and turning them into renewable sources of oil through the use of its proprietary microalgae.

Instead of putting all of its eggs in one basket, the company sees three broad markets that its oils can serve.

1. Fuels and chemicals
Solazyme can tailor its oils to meet the needs of companies like United Continental (NYSE: UAL  ) or AMR Corp.'s (NYSE: AMR  ) American Airlines. At the recent Paris Air Show, both companies showed great interest in biofuels. Solazyme has also formed a partnership with Chevron (NYSE: CVX  ) to further develop these fuels.

Meanwhile, chemical companies like Dow Chemical (NYSE: DOW  ) and Unilever have agreed to partner with Solazyme to offer alternative sources for functional fluids like soap, detergent, and de-icing materials. The chemical field alone represents an untapped $611 billion opportunity for Solazyme.

2. Health sciences
The oils that Solazyme makes can also be tailored to fit the needs of the beauty industry. Its recently created Algenist brand skin products are distributed through Sephora and QVC. The health sciences field as a whole represents a $323 billion market for Solazyme to penetrate.

3. Nutritionals
Food products are another iron the company has in the fire. Creating oils that are healthier than the standard fare, Solazyme has started selling its Golden Chlorella brand foods. The brand is available at Whole Foods (Nasdaq: WFM  ) and GNC (NYSE: GNC  ) stores.

Keeping its options open
Here's the key behind all of this: The company won't live or die by any one of these ventures. The three-pronged business strategy gives it flexibility.

Sounding eerily similar to the approach UNC took with its sidewalks, the company states: "We prioritize our market entry using criteria such as the highest average selling prices (ASPs) and gross margins, lowest capital requirements and shortest time to market."

In short, it's saying: We've got lots of options; we'll focus on the most profitable ones.

Foolish takeaway
I've already said in a previous article that Solazyme was a bit too speculative for me to devote a huge portion of my retirement portfolio to. Its very first quarterly earnings release is set to happen Aug. 4.

That doesn't mean the company isn't worth further consideration. The use of incredibly abundant feedstock (corn, sugarcane, etc.), along with the fact that Solazyme owns the patent to its oil-rich algae, means the company has an incredible runway for growth ahead of it.

If you'd like further ideas for the energy sector, let me offer you free access to a special report The Motley Fool has put together: 3 Stocks for $100 Oil. It's yours today, absolutely free!

Fool contributor Brian Stoffel owns shares of Whole Foods. The Motley Fool owns shares of Solazyme and Whole Foods Market. Motley Fool newsletter services have recommended buying shares of Unilever, Chevron, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (6) | Recommend This Article (22)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 28, 2011, at 1:44 PM, briscully wrote:

    Finally a Postive Article about Solazyme being a Buy. I bought in on them when they debuted. I felt they had a lot going for them, with approval already from the U.S. Gov, to be the future Jet Fuel supplier for the Navy (because it's cheaper than regular Jet Fuel). Plus their applications for their product in Cosmetics. Now with a solid deal in Cosmetics in the U.K. (with Space NK), this may help with meeting some corporate contacts in Europe, which in turn may help with future Jet Fuel sales over there. Once their production capacity grows to a good level in the next couple of years (which it will), and their Jet Fuel is approved for Commercial Airlines (which it should be since there is no engine modifications or conversions required to use Solazyme's Jet Fuel), this stock could be a Home Run.....but that's just My Opinion.

  • Report this Comment On July 29, 2011, at 9:26 AM, susan400 wrote:

    Are you sure? This looks pump/dumpish.

    We are going to track this closely.

    corn sugarcane ?

    without subsudies -= have you even studied it ?

    THM owns it ,,,, errrhhhhhoooough.

    Be back to you but this is likely a short as other ALT energies have been.

  • Report this Comment On July 29, 2011, at 9:31 AM, susan400 wrote:

    ""Let me introduce you to a company that's wisely positioning itself to one day be that company""

    "be" for sure? responsible financuial journalism?

    Tell me what happened to wind power stks, fuel cell, solar, which are less dreamy than converting algae to energy. They dropped 95+ % as reality hit.

    cost / gallon?

    Sorry to be so suspecious but what experience does teh writer have in this field?

  • Report this Comment On July 29, 2011, at 10:40 AM, TMFCheesehead wrote:

    susan400--

    As I said in the conclusion, "Solazyme was a bit too speculative for me to devote a huge portion of my retirement portfolio to".

    But I don't think there's anything wrong with placing several "small bets" (I hate using that word, but I think it gets the point across) on companies that you think have potential to break the rules within an industry.

    Let's check back in two years and see where we're at!

    Brian Stoffel

  • Report this Comment On August 03, 2011, at 5:32 PM, redrider1995 wrote:

    Thanks Brian for your article. Glad to see your thoughts on SZYM which mirror my own. Their approach to the fields of technology, marketing and business organization are imbued with a level of common sense that attracts investment more than repels. My plan is to buy a little and watch a lot. Can't hurt, right?

  • Report this Comment On August 05, 2011, at 9:42 PM, TempoAllegro wrote:

    On Aug. 4th, SZYM had its first conference call to discuss the last quarter's earnings. I listened live over the Internet, and am a shareholder. This company has multiple opportunities and seems ripe for full consideration for a portion of your forward looking portion of the portfolio now that it is just below its IPO price after the market slaughter that ended the week of August 5th. Of course, after just hearing about the downgrade, a better bargain may present itself. My intention is to hold on to my shares and add to them when possible.

    They will add production capacity in 2013 and 2015 - greatly so in the latter - and their oils are more concentrated so they are a better "bang for the buck" while able to be produced quickly and used with current equipment. They have recently completed an order for fuels for the U.S. Navy months ahead of schedule.

    If you go to their web site through Yahoo finance, look at the investor relations area, and register (no need to be a shareholder to do this) you may see the presentation slides from the conference clearly explaining the above better than I can. This looks like a Rule Breaker to me. Maybe I should sign up for that service and see if it is already there as a pick - I am just a Stock Advisor member - but SZYM looks to be a game change.

    Let's face it - we do like big companies - say INTC, AAPL, or IBM - which have innovated, reinvested during hard times, have good leadership, and stood the test of time. Yes, I do want one or more of them in my portfolio. But with their huge market caps how much bigger would they have to get before my own porfolio would feel the love? Only INTC gives a sweet dividend among them perhaps - my point is that SZYM has a market cap of only 1 billion and it looks like a 10-bagger or more to me from where I'm sitting. Patience is a virtue. I am holding my shares.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1526898, ~/Articles/ArticleHandler.aspx, 9/23/2014 6:25:47 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement