We have exited out of Rex American (NYSE:REX). REX is up 50% since our initiation report (here). We stated that there was ~50% upside in the report.
REX is one of the best-run ethanol producers in the US. REX has never lost money in the last decade despite volatile commodity cycles and generated record profits in 2023 due to high crush spreads. Contrast this to other publicly listed competitors such as Alto and GPRE that floundered despite a favorable environment.
Although we believe the management team is superb, our reason for selling is simply due to regulatory risk. We believe the market is ascribing almost a near certainty in REX’s ability to sequester carbon (their facility build-out is scheduled to be finished by the end of this year) which we estimated would bring in a $500mm dollar windfall over the next several years. Although we believe this is likely, the process is not without its challenges, notably the regulatory risk concerning permit approvals—a hurdle that has already impeded several other firms. REX stands a much greater chance of navigating these challenges successfully, owing to its prolonged engagement with the permitting process and a geographically advantageous position for carbon sequestration activities. Nonetheless, given its pricing, we prefer to adopt a position of cautious observation. We will look to deploy the proceeds into some potential AI and UK names that we will share with readers soon.
INVESTMENT DISCLAIMERS & INVESTMENT RISKS
Past performance is not necessarily indicative of future results. All investments carry significant risk, and it’s important to note that we are not in the business of providing investment advice. All investment decisions of an individual remain the specific responsibility of that individual. There is no guarantee that our research, analysis, and forward-looking price targets will result in profits or that they will not result in a full loss or losses. All investors are advised to fully understand all risks associated with any kind of investing they choose to do.
