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Corn-Based Ethanol Stocks Now Look Weak

** RETRANSMISSION FOR POINTS NEEDING ** A handful of corn is shown before it is processed at the Tall Corn Ethanol plant, Wednesday, May 24, 2006, in Coon Rapids, Iowa. Ethanol production in the United States is growing so rapidly that for the first time, farmers expect to sell as much corn this year to ethanol plants as they sell overseas. Inside the ethanol plant, corn is ground and mixed with water to make mash. It is heated and mixed with enzymes to convert starch into sugar and fermented wi
Charlie Neibergall
** RETRANSMISSION FOR POINTS NEEDING ** A handful of corn is shown before it is processed at the Tall Corn Ethanol plant, Wednesday, May 24, 2006, in Coon Rapids, Iowa. Ethanol production in the United States is growing so rapidly that for the first time, farmers expect to sell as much corn this year to ethanol plants as they sell overseas. Inside the ethanol plant, corn is ground and mixed with water to make mash. It is heated and mixed with enzymes to convert starch into sugar and fermented wi

John Quealy, vice president and energy technology analyst at Canaccord Adams, told CNBC’s “Power Lunch” that the immediate outlook for corn-based ethanol stocks is weak.

“There’s a lot of corn ethanol out there right now -- about five billion gallons last year -- and a lot of corn ethanol stocks,” Quealy said Monday. “We think the risk/reward for corn ethanol is relatively flat given where food prices are right now per bushel as well as ethanol prices per gallon.”

He suggested investors take a “basket approach” to investing in alternative energy and also consider established sectors such as natural gas and coal-to-liquid fuels.

He said cellulosic ethanol looks promising, but is now speculative. He suggested investors willing to take on risk take a look at SunOpta and Diversa and balance them with Archer Daniels Midland, an established company.

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