Best stock to invest in – FutureFuel Profits Preview | Alternative Energy Stocks



Best stock to invest in

by Debra Fiakas CFA

Biodiesel and biochemical
producer FutureFuel
Corporation
(FF: 
NYSE) will report fourth quarter 2015 financial results after the
market close today.  No conference call will be held due to low
attendance on recent calls.  The single published estimate for
FutureFuel is for $0.28 in earnings per share on $122.5 million in
total sales.  Despite an increase in this estimate in the last
week, the number still represents a significant decrease in earnings
compared to the prior-year period.  The Company has missed the
consensus estimate in both of the last two quarters and we do not
have particular confidence that this quarter will be a ‘beat.’ 

FutureFuel makes its living producing biodiesel and biochemicals,
which represent the Company’s two reporting segments.  Many of
the FutureFuel products are intermediate goods used in finishing
consumer and industrial end goods.  FutureFuel chemicals end up
in coatings, solvents, herbicides and nutrition products. The
Company is known for its bleach activator,
nonanoyloxybenzene-sulfate, which is used in household detergents.

FutureFuel shares took a tumble a few months ago after one of its
primary customers for the bleach activator, Proctor & Gamble,
announced it would cut back orders.  Ultimately, the agreement
with Proctor & Gamble was extended to 2018 with reductions in
price and volumes.  The company has had to scramble to keep
investors content that the near-term quarters can still deliver
growth and profits.

Historically, the Company has experienced erratic sales growth in
part due to volatile commodity prices.  While sales and net
income have varied year-to-year, FutureFuel is consistently
profitable.  Operations generate cash every year, providing
financial resources for future investments.  It is an
attractive achievement for a participant in the renewable energy
industry where most companies remain at developmental stage or have
not yet reach sufficient scale to generate profits.

The pull back in price provided an entry point into FutureFuel’s
shares.  Crystal Equity Research has a Technical Buy rating on
FutureFuel.  The shares have been on a steady climb over the
past three weeks, much as we expected in our initiation argument
issued in late January 2016.  We observe a strong line of price
resistance at the $14.00 price level that appears to have been
established during historic trading as higher volumes at these
prices suggest it is a trigger point for trader decisions. The stock
stopped short of this level in trading last week.  The stock
could drive up through this price if the quarter report shows
strength.


A laundry list of technical indicators was used to select FF as a
good stock for a long or bull case position.  Many of the same
indicators are monitored daily or weekly to decide when to close out
the position.  The stock appears overbought according to two of
the favorites, the Relative Strength Index and the Commodity Channel
Index.  However, we do not believe that all demand for FF has
been satisfied.  The Moving Average Convergence Divergence
(MACD) Line is still headed higher.  More importantly, the MACD
histogram is continuing to increase.  The MACD histogram
established a ‘higher’ high in trading last week, a circumstance
that underscores the strength of the price movement higher. 

Neither the author of the Small Cap
Strategist
web log,
Crystal Equity Research nor its affiliates have a beneficial
interest in the companies mentioned herein. 

– Best stock to invest in

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