I have two young girls, Lila, age 3, and Phoebe, 17 months,
and I find myself singing to them songs I remember from when I
was young. Those primarily are Irish songs, a near constant
presence in my house growing up on Long Island, New York. My mom
always had her friend Tony Jackson's show on (and he still does
his "Irish Country" show on Saturday evenings on WHRU in New
York) and my late Dad was always playing with the button
accordion and hosting various traditional musicians touring
around the States.
While I've always enjoyed Irish songs, it wasn't until I began
singing to my girls I paid a lot of attention to them-I was much
more interested in New Wave growing up. A few months back, when I
tried to remember the lyrics to an old rebel song I loved, the
"One Road," we ended up spending some time surfing YouTube for
various Irish tunes and came across a trove of Luke Kelly videos.
He was a remarkable singer with fantastic red hair who co-founded
the Dubliners and specialized in folk songs of Ireland and
elsewhere (he died in 1984).
My first tip today is to look up Luke Kelly yourself. I
especially recommend watching "Black Velvet Band" and the "Rocky
Road to Dublin." If you love folk singing, it will be time well
spent and you'll want to listen even after St. Patrick's Day. As
my wife will tell you, Lila, Phoebe and I are now obsessed.
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Let's shift gears from the wearing of the green to a different
sort of green-Green fuels. Last week, the average cost of a
gallon of gasoline in the U.S. was $3.52, according to the
Department of Energy. That's up a whopping 76 cents from a year
ago. Five years ago, a gallon was $2.70; 10 years ago, it was
It's to the point that the other day, I drove an extra few miles
to BJs Warehouse Club because the gas was 10 cents a gallon
cheaper. Given that demand rises in the summer (leading to the
industry nickname for summer: driving season) it's a good bet
that $4 a gallon gasoline will be on tap by Memorial Day.
The uncertainty on the world's energy flow promises to continue
to roil markets too. Between Libya and other Middle East unrest
and the effect that Japan's disasters will have on its increased
demand to import energy to make up for the destroyed nuclear
plants, the pressure is bound to continue. Plus there are the
fundamental supply and demand pressures that exist anyway, as
world economic activity rebounds from the recession.
All of that means biofuels are likely here to stay as a part of
the world energy supply. Today, biofuels are just 3% of the world
supply (in terms of refining capacity), but last autumn, when
gasoline prices were under control, they were projected to grow
at least at a 7% clip for the foreseeable future. But there is a
problem with biofuels.
Here in the U.S., for instance, 40% of the latest corn crop went
to ethanol. That's a stunning figure, especially considering that
world grain markets are under intense pressure because of poor
wheat crops in Russia and Ukraine, poor corn crops in China and
disappointing harvests here in the U.S. in both corn and soy.
The ability to get more from each bit of corn, whether extracting
more energy from it or using less energy to extract the same
amount of energy is a key hurdle to overcome. So is creating the
ability to produce suitable ethanol or other biofuels from other,
My stock recommendation for this issue is making great strides in
those areas. It's a California company called
. Specifically, Codexis produces biocatalysts, which make the
creation of ethanol faster and cleaner than traditional methods.
In the past, biocatalysts have been too unstable to use reliably,
but because they can be utilized at room temperature and without
the creation of hazardous byproducts-as in chemistry-based
catalytic actions-stable, reliable biocatalysts have long been
sought after. Codexis identifies and isolates the microorganisms
that produce the best enzymes, then performs a series of
intricate processes, including gene shuffling and mutation
identification to breed proprietary "superenzymes" that can be
used more cheaply and efficiently in the creation of biofuels.
The benefits include being able to use water as a solvent at
normal atmospheric pressure, eliminating the need for
purification actions later on and using less energy overall.
With biodiesel, which is chemically different from bioethanol
(the latter is an alcohol, the former an oil), Codexis believes
it has discovered a process that allows its creation both faster
Right now, biodiesel requires intricate steps from start to
finish, including halting the production process at one point to
chemically modify the intermediate product, and other costly side
steps. Codexis believes its process eliminates the need to
chemically modify the intermediate product, allowing the process
to run continually and slash expenses. Because biodiesel is
chemically identical to fossil fuel diesel, this may in fact be
the more promising of the two biofuel areas. Ethanol, being
chemically different from gasoline, requires additional
infrastructure "drop in" fuels that biodiesel does not.
There are plenty of other companies pursuing advances in biofuels
and catalysts, such as
), Verenium (VRNM)
, but Codexis has two characteristics that give it an edge. One
is that Codexis also has a market for its superenzymes in the
pharmaceutical industry. If you take Lipitor, you've experienced
the end result that includes Codexis. The company's superenzymes
are also sold to
Dr. Reddy's Labs (RDY), Teva Phamaceuticals
Arch Chemicals (ARJ)
, among others. That gives the company a solid revenue stream
while it looks to ramp up the biofuels business.
And the biofuels business is looking good. Codexis has been tied
to Shell Oil since 2006, when the pair teamed up to produce
biocatalysts for fuel production. For much of that time, Shell
has provided payments to Codexis to support development (Shell
will pay royalties if it uses Codexis' technology in fuel
A big uncertainty has been whether Shell will stick with Codexis,
having earned the right as of November to terminate the
relationship with nine months notice (an option Codexis does not
have). That uncertainty is waning, with the pair announcing in
early February they will use Codexis technology to produce
biofuels directly from straw and sugar cane waste by year's end.
This is potentially important because Shell has also teamed with
Brazil's largest ethanol producer, which uses sugar cane as its
A potential long-term bonus with shares: Codexis recently
announced it has made progress in a carbon sequestration
technique using custom enzymes that can be deployed in coal-fired
In its most recent year, ended December 31, Codexis made $107
million (up 77%) and shrunk its net loss to $8.5 million (35
cents per share) from $20.3 million. Shares in the Cabot Green
Investor portfolio are up just 8% so far from our buy price, but
they look like they are in the midst of building a rock solid
base around these levels to work higher in coming months. The
higher gas prices go, certainly the better outlook for Codexis.
Learn more about Codexis and other top Green stocks recommended
Cabot Green Investor
All the best,
For Cabot Wealth Advisory