Cosan (CZZ – NYSE)

Dear Bottarelli Research Member,

The investment banking world, as we know it, will never be the same.

Now that Washington Mutual (WM – NYSE) has failed, and Morgan Stanley (MS – NYSE) and Goldman Sachs (GS – NYSE) have converted from investment banks into bank-holding firms, the big question surrounding our “credit crisis” is this:

How much will the Fed’s proposed bailout plan really cost taxpayers?

In my opinion, we need a pro-growth plan to get our economy back on its feet, and getting people back to work is the number one priority. To accomplish this, I propose dropping the discount window that the Fed lends to banks. Doing this it will allow those with good credit to buy homes at a very attractive interest rate (most likely in the 2% to 4% range). Perhaps even lower. Since banks make their money on the spread that they borrow from the Fed, this would allow banks to make a very nice profit as well. And through it all, this plan would help to reduce the amount of new home inventory that’s currently sitting stagnant in this market. Everyone wins.

Furthermore, stopping foreclosures at the federal level, and giving homeowners the ability to re-negotiate terms with their lender, would also put a stop to the foreclosure market. And best of all, it would keep people in their homes! In my view, if you give people the chance to make things right, the entire sector would dramatically improve.

Now I admit, listening to Bernanke and Paulson’s testimony this week, I was pleasantly surprised to hear many of these ideas being suggested. Perhaps we truly are on the right track. It’s now just a matter of hammering out the details of the $700 billion rescue plan. If Congress can come together and get it passed, then the market bottom could be in. For inventors like us, that’s certainly great news.

After all, I’ve spoken many times about the far-reaching economic impacts of the building sector, and you better believe that the simple steps (outlined above) would improve every one of these critical sector groups. The only negative would be inflation, and at this point, inflation is something that we just have to deal with. Heck, the massive Fed bailouts are very inflationary, so we’re already there. The bottom line is, following this blueprint would be a major step to getting our economy back on track, and hopefully our political leaders can stop the bickering and move the economy in the right direction. So on that note, let’s get into this week’s newest small-cap pick!

Due to all the media coverage on the financial “toxic waste” that’s plaguing our markets, no one is paying much attention to the incredible small-cap opportunity I’ll present to you today. As savvy investors, the time to make our move is now!

The play revolves around alternative energy, but with a sweet little twist. You see, for many reasons, I’ve never believed in the benefits of ethanol produced by corn. Why? Well, to keep my argument simple, just look at the price increase of corn over the last 2 years. It costs way too much!

Not only that, but over that last several months, I’ve learned that many ethanol producers have cut back on building new facilities (due to the high cost of corn feedstock). Sure, those who were early to the party have a slight advantage, but they’re still getting hurt by exorbitant feedstock prices.

Since corn is used in so many products that we use everyday, I believe the price will keep moving higher – which directly affects the economics of corn-based ethanol. But that’s where this company comes into play.

You see, this play offers the world an ethanol-based alternative blend (which reduces the cost of gasoline at the pump) without being subjected to the rapidly fluctuating price of corn.

The secret is sugarcane.

Both John McCain and Barack Obama agree that sugarcane would be a much better ethanol substitute. In fact, as I did my due diligence (which included reading over numerous speeches by each candidate), both of them have noted that sugarcane is more cost effective and more viable than corn-based ethanol.

Up until now, I thought that sugarcane was only used to make sugar or alcohol. But it’s also being used to bring much cheaper fuels to market. That’s the big opportunity here.

You see, from an investment side, finding a company that’s involved within the publicly-traded sugarcane industry wasn’t easy. When it comes down to it, there are simply not too many companies out there to choose from. But that’s where this gem comes into play.

Trading for only $7.00 per share, this company is the largest producer of sugarcane-based ethanol. And their business is busting at the seams. This year alone, they expect to harvest 12% more sugarcane over 2007. They also expect a 25% increase in ethanol exports.

Now get this: Over the last 5 years, they’ve increased their sugarcane harvest from 5.2 million tons to 16 million tons. Back in 2005, they teamed up with China to export ethanol. And back in 2002, they had teamed up with the French. Now, they’re gearing up to bring the U.S. on board.

Once I dug into this company, I was amazed at just how long their arms were. Folks, they don’t have much competition (if any at all). When you consider the global push for gasoline and fuel alternatives, plus the fact that our two presidential candidates are both in favor of a shift towards sugarcane-based ethanol, it quickly becomes apparent that we have very powerful tailwinds at our back. So let’s get positioned now, before this gem becomes front-page news. When it does, this stock could take off like a greased hog through our fingertips.

This week’s pick is Cosan (CZZ – NYSE).

As I pulled up the chart, I noticed very large volume over the last few weeks. This is no coincidence. Smart money is now moving in, right as the stock touched its low for the year. It looks like the stock is gathering steam, which is why I believe this pick will be another quick winner.

Throughout the financial troubles, it’s important to realize that there are always pockets of strength that’ll make you money. Today’s pick is one such opportunity. Let’s establish a position in CZZ and set ourselves up for a nice 50% to 100% return! Buy CZZ under $8.50.

UPDATES

Many of you have written in to ask me about my outlook for oil and natural gas. I’ll cut to the chase and answer both questions for you right now.

For many reasons, I believe now is the time to build up positions in many of our little oil and natural gas gems. The biggest reason is that I do not trust OPEC. Their ability to fluctuate world oil prices is just too powerful, and they do not have our best interests in mind. The second reason (and one that may shock you) is that I do not believe that the Saudis have as much oil as they claim to have. I also do not, for one second, believe they’re “close friends” of the U.S.

Remember when I told you that the Saudis pay less than $0.50 cents a gallon for gasoline? They’re making a fortune off our dime! Therefore, I would use every dip to buy up quality small-cap names like GTE, IOC, XTO, BEXP, NOG, and last week’s pick SSN.

I also believe we’ll see coal to liquids come about very quickly, which will be bullish for our coal stocks like NCOC, ICO, and even SYMN (which is just waiting for legislation to come down). These are all very bullish sectors going forward.

RAM Energy Resources (RAME – NASDAQ): This stock is a screaming buy at these levels. Nothing has changed, and I still don’t think RAME is being given credit for its true value – not even close. Buy.

Huaneng Power International (HNP – NYSE): Could it be that HNP is finally about to break out? China has put out a stimulus package, and we know just how important this will be during any type of growth. Continue to hold your position, but be sure to take half of your profits off the table if shares reach the 50% profit level. Take half profits at 50%.

Samson Oil & Gas Limited (SSN – AMEX): Last week’s pick came out flying, but as I mentioned, keep those 100% gain orders at full tilt! I just received word that SSN’s CEO Terry Barr will do a live presentation at the Edgewater Research Conference on September 25^th. Edgewater Research is an independent organization specializing in micro-cap stocks, and it looks like SSN will gain some nice exposure from this presentation. Folks, this little gem can move fast and furious! Hold.

American Capital (ACAS – NASDAQ): We hit a nice intra-week winner, as ACAS moved aggressively higher despite a weak market. We sold half of our position and locked in a 40% gain in less than a week. Nice trading! ACAS still looks strong going forward, so maintain the second half of your position. Hold.

Currency Shares Euro Trust March 152 Calls (FXE CV): This is our hedge position, which bets that the Euro will move up (especially since the U.S. bailout will hurt the U.S. dollar). If you’ve entered this position, then you’ve seen just how quickly FXE can move. On Monday, for example, the FXE was up over $3.00. My suggestion today is to place a sell order on this option at or above $4.60. This way, you can lock in a nice gainer on an intra-week basis. Place sell order at $4.60.

TRADING NOTE: I’m getting many signals that the commodity downtrend is now over. I firmly believe that a bailout move by our Fed (once approved by Congress) will spark a new rush of money into both hard and soft commodities. As we move through these troubled times, we must use our eyes and ears more than ever. Being nimble and finding hidden gems at “fire sale” prices represents opportunities that only present themselves once in a lifetime. So as we begin a new era of federal intervention, stay locked in and focused. We’ll help you to prosper through it all, and don’t hesitate to write me if you have any questions. And as always, be sure to give thanks for the abundance in you life.

Sincerely,

“Wall Street was shaken to its foundations in the most harrowing and volatile week in modern history.”

- Barron’s, September 22^nd 2008

Crisis = Opportunity: CZZ Turns Sugar Into Gold

As Mark mentioned above, we had yet another volatile week in the markets. The quote from Barron’s (above) drives home this viewpoint. But with crisis comes opportunity, and that sets the tone for this week’s play on Cosan Limited (CZZ – NYSE).

Founded in 1936 and based in Sao Paulo, Brazil, CZZ operates 17 mills, two refineries, and two port facilities located in the Center-South region of Brazil. Geographically speaking, favorable soil, topography, and climate make this region one of the world’s most productive sugarcane locations.

As a pure commodity, sugar is an essential consumer product. Sugar is primarily derived from sugarcane and sugar beet, but sugarcane accounts for more than 70% of the world’s total sugar production. So in many respects, you can argue that CZZ is one of the most under-appreciated commodity plays on Wall Street.

After all, the sugarcane that they grow and produce is used in standard and refined sugars, including raw sugar, crystal sugar, organic sugar, granulated refined white sugar, amorphous refined sugar, refined sucrose liquid sugar, and refined inverted liquid sugar.

Cosan sells their entire line of sugars to retail supermarkets, foodservice distributors, and food manufacturers in Brazil. They also sell their raw sugar and ethanol blends in Europe, North America, Latin America, Africa, Middle East, and Asia, making them a truly global sugar play.

In addition, CZZ also produces and sells hydrous, anhydrous, and industrial ethanol. In fact, ethanol has been used as a fuel additive in Brazil since the 1930s, and CCZ is one of the world leaders in the new push for sugarcane-based ethanol. The company’s full product breakdown is listed below…

Sugarcane: CZZ is the largest grower and processor of sugarcane in the world, having crushed 36.2 million tons in fiscal year 2007 and 27.9 million tons of sugarcane in fiscal year 2006.

Ethanol: CZZ is the largest ethanol producer in Brazil (and the second largest in the world). They produced 326.7 million gallons in fiscal year 2007 and 241.7 million gallons in fiscal year 2006. Of this total, CZZ exported 72.6 million gallons in fiscal year 2007 and 61.0 million gallons in fiscal year 2006. All told, CZZ’s ethanol exports grew more than 50%.

Sugar: CZZ is the largest sugar producer in Brazil, and one of the three largest sugar producers in the world. They produced 3.2 million tons in fiscal year 2007 and 2.3 million tons of sugar in fiscal year 2006. Of this total, CZZ exported 2.8 million tons in fiscal year 2007 and 2.1 million tons in fiscal year 2006.

As you probably know, ethanol is marketed across the United States as a fuel additive that reduces vehicle emissions as part of federal and state clean fuel programs. That’s why 94% of U.S. ethanol production is currently used as a fuel additive in gasoline (the remaining 6% is utilized for industrial purposes).

This is important because Brazil is the world’s largest ethanol producer. Over 80% of Brazil’s ethanol production is sold in the domestic market. Combine Brazil’s global ethanol production with CZZ’s global sugarcane position, and you have the perfect storm for a strong winner going forward. You see, when it comes to sugar-based ethanol, the benefits are crystal clear.

• Sugar-based ethanol is 7x more efficient to run a car than corn-based ethanol.
• It takes only $100 to alter your existing car battery to get 85% of your fuel from sugar-based ethanol. Therefore, the mass-market implementation can be simple and easy.
• Unlike hydrogen fuel, you wouldn’t have to eliminate the entire current fleet of cars on the road to switch to sugar-based ethanol.
• Brazil by itself could provide enough sugar plantations to supply the entire U.S. with ethanol without damaging any rain forests.

Just by themselves, these benefits make a strong case for CZZ. And from an investment side, there’s a really good chance that a corn-based ethanol producer like Archer Daniels Midland (ADM – NYSE) or VeraSun Energy (VSE – NYSE) might be willing to pay a steep premium to acquire CZZ outright.

After all, who wouldn’t want to hedge their corn-based ethanol business by acquiring the largest sugar and ethanol producer in Brazil? In fact, Archer Daniels has already expressed a desire to diversify into the sugar cane-based ethanol market, making CZZ a realistic takeover play (especially with shares trading down to $7.00!).

After hitting a 52-week high on March 3^rd 2008 at $16.19, CZZ shares are now bottoming out around $7.00. In fact, the $7.02 price on September 10^th was a new 52-week low. And as Mark mentioned above, that’s when he began to notice heavy buy volume moving into the stock. It’s easy to see why.

Their income statement shows trailing three month revenues of $1.19 billion, which amounts to $5.27 in revenue per share. Therefore, paying anywhere under $8.50 for the stock right now looks like a bargain-basement price. Therefore, let’s go ahead and add shares of Cosan to our small-cap ledger now!

PLAY: Buy shares of Cosan (CZZ – NYSE) at or under $8.50, good for the week.

Sincerely,