Obama's New Favorite Energy Stock

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Clean energy has been one of this president's favorite topics.

Mr. Obama calls his strategy "All of the Above" and has vowed to continue to fund energy research and development even if it fails. This is a bold statement considering the heat he took for losing more than $500 million in a failed energy startup called Solyndra. But the president is undeterred and says he's committed to energy innovation, and is willing to fund it.

Mr. Obama made these points recently in a speech at the University of Miami in Florida. His "commitment" was what made headlines, but it wasn't all the White House had to say on the matter.

The president also announced a $14 million grant funded through the research arm of the Energy Department to support the development of biofuels from algae and thus diversify the nation's energy portfolio.

Here's the thing: The technology is already proven.

At least one company is past the R&D phase and is already selling fuel derived from algae. Another, ExxonMobil (NYSE: XOM ) , has allocated $600 million to seek its own algae breakthroughs.

Crude oil is basically plant matter that died long ago, became trapped in rock and over time developed into petroleum. Algae can be genetically programmed to mimic this process. Special types of algae being grown today can be harvested, dropped into an oil refinery and turned into fuel and other products.

How? A neat trick.
Scientists know plants devote lots of energy into making food through photosynthesis. But if the plant doesn't have to do that, then it puts all of its energy into growing. So biofuel algae are grown in the dark with plenty of food. The algae grow at a remarkable speed, ready for the refiner in days instead of eons. No need to wait, no need to drill. It's the same as crude oil, but renewable, unlimited and "green."



The political reality is the president needs a clear win in clean energy.

He's allocating a small sum to an algae study because he knows the technology works. He wants to say it works and note that he funded the research into it. He knows he can't take credit for Exxon's investment, nor for the hundreds of millions investors have poured into other algae-fuel companies.

The leading algae company is Solazyme (Nasdaq: SZYM ) .

I've written about the company's promise in my Game-Changing Stocks newsletter since before its shares even went on the market . (And, not to put to fine a point on it, but I've also long said the president would use ARPA-E findings on the campaign trail.)

Why do I say the president already knows algae works?

Because Solazyme is already selling fuel to the U.S. Navy -- also to United Airlines (NYSE: UAL ) .

The company also sells other products made from the various oils it derives from algae. Its biggest customer for these oils is the giant European personal goods company Unilever (NYSE: UL ) . It uses these oils to market a popular algae-based skin care line sold at Sephora, one of the nation's leading cosmetics retailers. It even has a foods division that makes flour from algae.
 
Now, can algae deliver the fuel of the future? That's the wrong question.

It's the wrong question because we already know the answer -- yes, it can -- and Mr. Obama knows it. So do investors who are buying shares of Solazyme and the analysts who are slapping "outperform" ratings on the stock.

Risks to Consider: I typically recommend most investors reserve 20% of their portfolio for stocks like Solazyme. You have to be willing to tolerate some volatility -- but the rewards can be tremendous.

Action to Take --> Do your own algae study. Check out what this exciting company is doing. (You can read about it in my newsletter, Game-Changing Stocks , where I covered Solazyme in a recent issue.)

After you take a look, I think you'll see what I see -- which is that these shares were made for aggressive growth investors with a long-term time frame to reap outsized returns.


--Andy Obermueller

Andy Obermueller does not personally hold positions in any securities mentioned in this article. StreetAuthority LLC does not hold positions in any securities mentioned in this article.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.


This article appears in: Investing , Commodities

Referenced Stocks: SZYM , UAL , XOM

Andy Obermueller

Andy Obermueller

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