Best Stock for 2008: Archer Daniels Midland

Ring in the new year with more stocks for 2008. 

Boy, did ethanol have a bad year. Industry players like VeraSun Energy (NYSE:VSE) and Aventine Renewable Energy (NYSE:AVR) ramped up production capacity in excess of demand, and the price of the homegrown fuel fizzled. But that wasn't the only problem. As its price fell, ethanol got more and more attractive to refiners seeking cheap octane, and demand wasn't so much the issue. The distribution infrastructure also had not kept pace with the prodigious production.

But it's a new year, and I think 2008 will be much kinder to ethanol and other biofuels. That, of course, implies a strong year for Archer Daniels Midland (NYSE:ADM), the self-described "world leader in BioEnergy." That's right -- the corn conquistador has radically reinvented itself in recent years, and is now run by a Chevron (NYSE:CVX) veteran. However you feel about the present generation of alternative fuels, the momentum here seems inexorable. Still, there are near-term uncertainties, and that's why you don't want to roll with a rookie.

The new U.S. energy bill, which is not particularly ambitious, still provides some nice industry visibility. (Contrast this to the solar industry, which faces regulatory uncertainty thanks to expiring tax incentives in 2008.) Biofuels, in particular, got a nice boost, and ADM's joint ventures with the likes of ConocoPhillips (NYSE:COP) and Metabolix should be galvanized by the friendly regulatory climate.

The story goes far beyond the U.S., of course. In 2007, ADM took a stake in Wilmar International, Asia's leading agricultural processor. This palm oil producer feeds Europe's booming demand for biofuels. A bit closer to home, there's also the giant Brazilian biofuels market, where many industry observers expect ADM to make some kind of move. The presence of Petrobras (NYSE:PBR), which recently revealed plans to build 10 biodiesel plants over the next five years, may make maneuvering in the country a bit difficult, but ADM may still find a way into the fray.

Finally, even if I'm dead wrong and the ethanol producers take another pasting in '08, ADM still comes out ahead, in my view. The company has many other profitable lines of business, and it is well-financed. If smaller players like Pacific Ethanol (NASDAQ:PEIX) get pulverized, ADM can choose to step in and pick up the pieces.

If you agree that ADM is about to ascend, aim your browser over to Motley Fool CAPS, and rate the stock "outperform." We'll be tallying your votes, and may the best business, biofuels or otherwise, win. Tally ho!