ANALYSIS-Battered ethanol stocks saved by energy bill

By Matt Daily

NEW YORK, Dec 18 (Reuters) - The new U.S. energy bill that will prop up the battered ethanol industry has triggered a rebound in the shares of ethanol makers, but hurdles to growth and volatile commmodity prices will keep them on rocky path into 2008.

Shares in VeraSun Energy VSE.N have rallied 58 percent since November 20, while U.S. BioEnergy Corp USBE.O has jumped 90 percent, Aventine Renewable Energy Holdings Inc AVR.N 49 percent and Pacific Ethanol Inc (PEIX.O) 73 percent.

"We've seen Congress telegraphing their intent to raise the (usage mandates). It's been very positive for the ethanol stocks," said Kevin Book, analyst with Friedman, Billings, Ramsey.

"What we don't know is if these are long-term believers ... or fast money looking for a buck," Book said. "The Cramer effect is just waiting to happen here," he added, referring to popular stock picker Jim Cramer whose recommendations can drive a company's stock sharply higher.

The U.S. House of Representatives on Tuesday passed an energy bill that expands the annual mandate for U.S.-grown biofuels, including ethanol, to 36 billion gallons in 2022 from the current level of about 6.5 billion gallons.

The White House has said President George W. Bush will sign the bill into law on Wednesday.

Even with the recent rally, ethanol company stocks remain down between about 25 to 50 percent since the end of 2006 as profit margins for the fuel faded because of a supply glut from the fleet of newly constructed plants.

Analysts remain bullish on the sector for the longer term, but expect those companies' share prices to remain choppy in 2008, largely because of the volatile price of corn, the main source of the fuel.