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In early January, shares of little known Syntroleum (SYNM) were trading at 7 apiece, hardly attracting any attention on the Street. A couple of months ago, the stock started gushing up from 7 and hit 25 in late March.
This energy company, which has yet to make a penny in profits or produce decent revenues, then headed south along with the market, but it has more than recovered and is currently trading at 26.
Some pros think Syntroleum is still a a stock to buy in spite of its sharp six month rise. "For what it could deliver in the form of new energy, the stock is definitely worth a heck of a lot more," says investment manager Stuart Rudick of Rudick Asset Management, in Mills Valley, Calif.
ENRON'S EYE.
Just what is Syntroleum? The company has developed a proprietary process that catalytically converts natural gas into synthetic diesel fuel and gasoline. It was formed in 1998 through the merger of SLH Corp. and Syntroleum Corp. The new company caught fresh investor attention recently because Enron (ENE), one of the world's leading marketers of natural gas and electricity, has agreed to invest $13 million to acquire a 13% stake in a $400 million specialty-chemicals plant that Syntroleum is building in western Australia. Enron, which had 1999 sales of $40 billion, has a $53.6 billion market cap.
General Motors (GM) also helped lift Syntroleum's stock. The carmaker has signed an agreement with Syntroleum to test its synthetic fuels for advanced power-train systems. The director of GM's Chemical & Environmental Sciences Lab, James Spearot, says the No. 1 auto maker wants to better understand the properties and advantages of synthetic fuels, as part of GM's power-train development program.
Syntroleum has licensed its proprietary process of converting natural gas into synthetic oil and transportation fuels to major energy companies, including ARCO, Texaco, Kerr-Mcgee, and Repsol-YPF.
BIG-NAME BANKS.
Another factor that's boosting Syntroleum's stock is the company's recent announcement that it's going to raise $120 million through a secondary public offering of shares. The offering will be handled by some of the nation's top investment banks, including Goldman Sachs, Merrill Lynch, J.P. Morgan, and Salomon Smith Barney. Syntroleum intends to spend $75 million to $95 million of the offering's proceeds to fund the construction of the specialty products plant, called Sweetwater, in Australia.
Usually a secondary share offering tends to deflate a stock's price, since more shares would dilute earnings. But in this case, investors believe the offering will achieve the opposite for two specific reasons: It will attract more investors once the top-flight investment banks start their roadshow on Syntroleum to sell the shares. And it will let the company build the Australian facility necessary for its proprietary process.
Some big investors who have started buying shares believe Enron could become a big factor in Syntroleum's plan to develop a more environment-friendly fuel. The plant in Australia is expected to generate $235 million in annual sales for 20 years, according to Syntroleum.
"Enron is more likely than not to get more involved in what Syntroleum is trying to achieve, and in its ultimate stake in the company," says Rudick. Evidently, he adds, deep-pocketed Enron sees "good value and a huge business and investment opportunity in Syntroleum, and so do we."
Gene Marcial is Business Week's Inside Wall Street columnist
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