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 (NAS: 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 (NYS: UAL) or AMR Corp.'s (NYS: AMR) American Airlines. At the recent Paris Air Show, both companies showed great interest in biofuels. Solazyme has also formed a partnership with Chevron (NYS: CVX) to further develop these fuels.
Meanwhile, chemical companies like Dow Chemical (NYS: 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.
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 (NAS: WFM) and GNC (NYS: 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.
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.
At the time this article was published Fool contributorBrian Stoffelowns shares of Whole Foods. The Motley Fool owns shares of Solazyme and Whole Foods Market.Motley Fool newsletter serviceshave recommended buying shares of Unilever, Chevron, and Whole Foods Market. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.