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Why Pacific Ethanol Stock Just Keeps Going Up

By Rich Smith - Aug 18, 2020 at 11:50AM

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Covid isn't going away. Maybe Pacific Ethanol's profits won't go away, either.

What happened

After dipping a bit on Friday, shares of alcohol-producer Pacific Ethanol (ALTO 2.86%) are back on a tear this week, rising first 30% in Monday trading and now another 16.5% today. Through 11:45 a.m. EDT, the stock has gained more than 48% in less than 48 hours of trading!

Why are Nasdaq investors all hot and bothered over this coronavirus stock this week?

Stock up arrow rising over 2020

Image source: Getty Images.

So what

The answer? Because Pacific Ethanol is a coronavirus stock.

While the company has historically been viewed (and rightly so) as a fuel-additive maker, producing ethanol to be mixed with gasoline for fueling cars, Pacific Ethanol has come into its own as a producer of in-demand alcohol for disinfectants and hand sanitizers in recent months. Thus, even as revenue declined last quarter, the profitability of that revenue increased dramatically -- enabling Pacific Ethanol to deliver its first quarterly profit in 3 1/2 years.

Now what

This week, investors are betting that this is the beginning of a new trend -- a new business model for Pacific Ethanol, in which its signature product (ethanol) is sold as a high margin weapon for combating coronavirus, rather than as a low-margin alternative to gasoline.

Whether that's the right bet to make will depend on how long the coronavirus poses a threat. I'm betting that it (or diseases like it) are going to pose a threat for a very long time -- and Pacific Ethanol investors seem to agree.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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