Updated Watch List - DSTI STKL DVSA

No go on DayStar. Stock gapped up this morning slightly above the 200 DMA at $6.17 and was met with resistance. DSTI may trend lower and bounce of the bottom trendline before moving higher. This may provide a low risk entry point.

I am however adding two more stocks to my watch list: Sunopta Incoporated (STKL) a company I have followed for years, and Diversa Corporation (DVSA); two potential cellulosic ethanol plays which could generate sizable returns as we gear up for the summer driving season.

STKL, a diversified healthy product company, manufactures a continuous steam explosion technology which is a critical component needed for the break down of cellulosic biomass. The company is profitable and balanced nicely with a booming organic/healthy foods division and a minerals group. More importantly they have set up significant contracts with major ethanol producers around the world including: Abengoa Bioenergy and GreenField Ethanol Inc; the 2nd largest ethanol producer in the world and largest Canadian ethanol producer, respectively.

My only apprehension is the stock is trading at a multi-year high and commanding a pricey P/E of 64. That being said, strong stocks often continue to strengthen and A pull back to $11.75 range might provide an attractive entry price.

DVSA, a specialty enzymes developer with a portfolio of enzymes capable of breaking down biomass into biofuels has recently been hammered over concerns with its purchase of Celunol Corporation. T.Rowe Price, a 7.9% share holder has voiced their disconent over the purposed acquisition in a filing on March 12. Another alarm was a going concern notification listed in there annual 10-K recently filed with the SEC.

Aside from the disconcerting issues mentioned above, the stock does present an interesting speculative buy at these levels. DVSA is currently sitting near its 52 week low(support) and the share price seems to have stabilized on substantial volume, indicating the sell-off could be near completion.

Fundamentally, if DVSA can complete their purposed $100 million private placement and the Celunol merger, the stock might bounce back significantly from its current over sold levels. The Celunol merger could also prove to be more beneficial than anticipated given that Celunol currently operates two fully functioning cellulose ethanol pilot facilities. Integrating Celunol's patent technology with DVSA enzyme portfolio could prove to be interesting. However, at this point I believe there is still substantial risk involved and thus I will watch.