by Travis Johnson, Stock Gumshoe | March 2, 2009 1:20 pm
That’s the subject line of a recent ad from Jeff Siegel[1] for his Green Chip[2] Stocks newsletter, as he issues a new buy recommendation on a stock that he has written about several times before.
It’s a geothermal[3] power generation company, which was a huge favorite of investors for quite a while in 2007 and 2008 when energy prices were climbing and alternative energy[4] stocks of all stripes were taking turns being the “flavor of the month.”
We’ve seen many of these stocks teased by newsletter writers over the past couple years, including the one we’ll look at today, not just by Green Chip Stocks[5] but by several other newsletters as well.
So what is today’s pick? And with almost every single stock in the market falling like a stone today, is it worth a gander?
Siegel tells us the story of going to meet the executives of this particular company a few years ago:
“After I checked into the Marriott, dropped off my luggage and freshened up, I was escorted to downtown Boise, where I was to meet the top brass of my latest blockbuster renewable energy[6] play.
“I met them at the Basque restaurant Leku Ona, which means “good place.”
“I was pretty excited to meet the officers of the company because single-handedly these guys sealed the deal to construct and operate the first-ever geothermal power plant in the state of Idaho. This is huge considering the DOE ranks Idaho 3rd in the nation in potential geothermal energy capacity. Only California and Oregon are bigger.”
And the story continues …
“Now, the next day – on Saturday, July 29, I attended the groundbreaking ceremony at the site of the new power plant, which is situated in a town known as Raft River.
“Raft River is the most unlikely place to find the early stages of the American geothermal revolution. It’s a jerkwater outpost that’s a 3-hour drive from Boise. When I say “jerkwater” I mean this place is isolated from civilization. I counted only 6 residential homes and just one diner on our way in.
“But I couldn’t have cared less. This was an historic day for the state of Idaho and for the entire geothermal energy market.
“You see, the geothermal power plant at Raft River would soon become the only geothermal power plant in the state of Idaho. So this tiny $0.80 company had a virtual stranglehold on the Gem state. “
He goes on to explain the potential of this company …
“And were talking about a mountain of cash in return. This one single project has a potential worth of about $140 million in annual revenue!”
And then he goes on to explain why this stock should be bought now — I’ll give you a little hint: he thinks it’s a bargain, because it’s once again as cheap as it was when he first touted it:
“I recommended this geothermal stock to my readers on July 25, 2006, when it was trading for around $0.80 a share. By October 31, 2007, the stock hit $4.78 a share – delivering Green Chip investors a 497% gain – in less than 14 months….
“Less than 3 years ago, this company had no operational power plants, no revenue stream, and only one other property besides the one in Idaho.
“That’s when we first got in and watched it soar nearly 500%.
“Today however, in 2009, the company has 2 operational power plants, a consistent revenue stream, and another property that it’s currently developing.
“But it’s trading at $0.80 a share again!”
No mention is made of having told his investors to sell when the shares were anywhere near $4.78, of course (he might have, I have no idea … but it seems unlikely that he would have made a good sell call and not bragged about it).
So what is this geothermal company that has an operating power plant, and some actual revenue?
I’m so glad you asked!
Siegel says it’s a better stock now than it was last time he recommended it, since the company has advanced while the share price has collapsed. And he doesn’t spare the hyperbole:
“Bottom line: This is perhaps the greatest, and most ignored bargain on Wall Street.”
And the Thinkolator tells us that this stock is …
US Geothermal [7](HTM)
I wrote about this stock close to two years ago[8], when Green Chip Stocks was promoting it very heavily with teaser ads — back then it was still traded over the counter and hadn’t yet moved to this AMEX ticker symbol, but investors were jumping on in droves … by then the shares had already been talked up to about two bucks, and they were well on their way to the highs of well over four dollars that they reached about six months later.
US Geothermal does indeed have a geothermal power plant in the Raft River area that they were just starting to build back when Siegel touted the shares, and their revenues have been climbing significantly (and are expected to climb still further, according to the one analyst who follows the company). That one analyst, according to Yahoo[9] Finance, does not expect earnings, though — he (or she, haven’t checked to see who it is) thinks they’ll be up to 3.4 million in annual revenue by the end of the current month, and to over $7 million in the year that ends next March, but still losing seven or eight cents per share per year.
You can see the company’s financial reports here[10] — they released their last quarterly report a few weeks ago, and reported a net loss of one cent per share for that December quarter (they’re on a March fiscal year, so we won’t see an annual report for several months yet).
It’s hard for me to guess how and when a big capital project like this is going to make money — and after that, when it will begin to be profitable for the investors, but it is nice that (unlike some geothermal story stocks) they are actually generating electricity, and they’ve been funded primarily by equity so they don’t appear to have any big debt problems at the moment.
They’ve also got a couple other properties that they may be working on for new plants in the years to come, and it’s quite possible that they’ll benefit from any additional “green energy” stimulus spending or credits in the years to come, but I wouldn’t necessarily count on anything exciting like earnings or dividends[11] anytime soon — this is a small company paying all the overhead for a fairly expensive power plant that’s a long way away from most of the customers who’d like to pay a premium for “green” energy (a similar problem to most of the wind energy companies — most of the States that mandate green energy purchases are on the coasts, most of the good wind and available real estate[12] is in the plains). And as natural gas[13] prices collapse, the impulse to pay a big premium for geothermal energy might be lessened.
Who knows, maybe we will see a “smart grid” and a better power transmission infrastructure built over the coming decades, which could only help the appeal of remote generation projects like US Geothermal’s Raft River plant.
Most current geothermal generation in the US is in Northern California, at the Geysers — so you can also look at some of the companies working there, from Western GeoPower (WGP, trades in Canada[14]) on the small side to Calpine (CPN)[15] on the large side. (Calpine emerged from bankruptcy not that long ago, and Western GeoPower was still, last time I checked, a ways behind HTM — they’re aiming for an operational plant in 2010).
There’s also Raser Technologies [16](RZ), which has also been teased many times — they’re working on lower-temperature geothermal generation in Utah and elsewhere; and Ormat Technologies (ORA)[17], which is vertically integrated, meaning they build and operate plants and design generation equipment, and is the largest pure-play geothermal company I know of, (and the only one that’s profitable).
If you’ve looked at US Geothermal before — and I know many of you long-time Gumshoe readers have, since it has come up several times over the past couple years — please let us know what you’re thinking. My general preference is for companies that are profitable these days, but maybe I’m just a nervous nellie — and God knows, the profitable ones are falling just as hard as the unprofitable at the moment.
And of course, if you’ve ever subscribed to Green Chip Stocks[18], please click here to share your opinion[19] of that service.
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I wonder if as a US investor you would be better to look at the Australian geothermal development company GDY. It too has just reached the production stage and it too requires a lot of capital yet to scale up production. But you would be able to take advantage of the currently strong US dollar and enjoy a little currency risk diversity.
Travis, thanks for the insights. I know up here in our neighborhood people are doing small scale stuff, pumping water down a few hundred feet and harvesting the heat differential for both heating and cooling. But right now, even GOOD utilities are being hammered, so it’s hard for me to see much upside in this one.
To play off your remark about the market falling like a stone, the gravity of that remark was not wasted on me. It doe strike me that much of the current downward pressure on the market is that we are gong thru a re-evaluation of the the basic metrics of VALUATION.
Equities, like stocks, real estate, and even to some extent bonds, reside in an imperfect market – that is, it isn’t like valuing #2 yellow corn, which is the same corn in Indian as it is in India, But a house in one place isn’t the same as a house somewhere else, nor is equity in a utility a simple valuation process.
On one hand, I want to say that VALUE for all equities will ultimately reach a point where they will be determined by net revenue divided by a desired cap rate. If that assessment is true, I will go out on a limb here (go ahead, get your saws ready to give me a fall) and say that markets will stabilize once we get to back to THE VALUES THAT EQUITIES AND REAL ESTATE COMMANDED in 1995.. Another way of saying this is: the world economy must shrink that much to reach a sustainable YIELD on capital in ALL EQUITIES MARKETS.
It’s going to hurt, but I recall eating pretty well in 1995, and I also did not believe in any of the “growth” that occurred after that year. After that year was the birth of the 0% financing stuff, acceleration of the tech bubble to absurd proportions, and a miscalculation by Greenspan in loosening credit after 9-11. Then the tricks and games that followed really reached the height of craziness. It all caused what I called an EERIE BOOM, a kind of growth based on debt rather than real financial capacity. A focus on payment, not price (that one really put the red flag in my face) I watched, but didn’t want to play, and was on record saying in the January of 2008 in 3 publications that it was time to move Wall Street to Las Vegas.
BUT, I hate to bet against the USA, so I have been nibbling at stocks that, let’s face it, if they go broke, their book value is a multiple of their their share price. This is a B/P ratio, And it works pretty good. Look at the market today. Any stock you can buy today that is selling for what it sold for back in 1995, is POSSIBLY a real value.
What does the THINKALATOR think of them beans?
http://finance.yahoo.com/q/ta?t=1y&s=ORA&l=on&z=m&q=l&c=rz%2Ccpn%2Cwgp.v%2Chtm
Jeff is trying to pick winners in a blizzard. I had a short subscription to his service in the winter of 2007/2008 & most of these Geo stocks were higher then, incl, ORA.
He’s an attentive guy, he even replies to emails, but he’s working in a very beaten down set of industries.
Fellow Investor,
The clock is ticking, so I’ll be brief.
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My PC is printing postings from March, 2009, (even one of my own) am I missing something, or did you want this rehash Travis?
BTW, I’m still on the road, have a Happy Memorial Day W/E, drive carefully folks!
Can any of these GRREN stocks make any money without sudsidies from the government? Yes we all love a clean, green environment ….but what about “REALISTIC” alternatives like Nuclear and Natural Gas ……EXCELLENT clean fuels whci we have in ABUNDANCE. it took awhile ,but we can now see that ethanol additives in gasoline were worthless…..and a BIG failure …..do we have to repeat this with Geothermal and Wind?
Just think , OBAMA will have us all driving “Clown Cars” with windmills on the roof LOL
Travis, I would assume the Navellier teaser above will recieve a quick toss in the thinkolator. We know you like to expose his secrets. Hopefully even at 70% off. Love this site.
Such rosy short-term predictions have investors swooning over Sociedad Química y Minera de Chile S.A., or SQM, the Chilean fertilizer and mining company that produces nearly a third of the world’s lithium carbonate and whose leather-skinned employees brave the Salar de Atacama for the sake of gadget lovers. In the past three years the Big Board-traded shares of SQM have climbed from $11 to $22. In the first six months of 2008 SQM reported a profit of $191 million, up 103% from a year earlier, on sales of $787 million, up 41%.
I contacted Siegel a couple of years ago, asking why we shouldn’t drill ANWR. He replied that the oil there would last America for perhaps a year or so, implying the false premise that we would discontinue importing oil. Yeah, right. I was born at night, but…
If the guy would simply say, Hey, the fix is in, and YOU can profit from it, I could handle that. But this “great idea” aspect (requiring huge infusions of taxpayer dollars) is nonsense.
If not for the pump and dump nature of exclusively green co’s (as opposed to established co’s that are adding green projects to current activities, eg, BP), based largely on “great ideas” (and aren’t they ALL “great ideas”: anyone out there pumping “if you’re completely stupid, this is for you” stocks?), there doesn’t seem to be much “there” there.
“As the Economy Tanks,” our national soap opera, will likely cost Obama a lot of dem support as dem reps (all House reps are up for re-election in 2010) from states with oil, coal, other traditional power sources will be heading for the exits, distancing themselves from Obama’s “ideas” that are destructive of these respective states’ economies.
Let’s all move to Detroit! Better: send Obama to live in Detroit. I suspect that The One would soon become Just Another Statistic.
I’ll second the motion on SQM. They are the dominant Lithium miner and enjoying rising fertilizer prices with a potential new agriculture boom underway. They are firing on all cylinders and located the most capitalism friendly South American countries, Chile. PE is 21 and growth is about 30% per year.
“Sociedad Quimica y Minera de Chile S.A. (SQM) (NYSE: SQM) reported today earnings for the first quarter of 2009 of US$86.3 million (US$0.33 per ADR), an increase of 33% with respect to the same period of 2008, when earnings totaled US$64.8 million (US$0.25 per ADR). Operating income reached US$119.5 million (37% of revenues), 39% higher than the US$86.2 million (26% of revenues) recorded during the first quarter of 2008. Revenues totaled US$320.9 million for the first quarter, representing a decrease of 2% over the US$326.3 million reported in the same period of 2008.
Some good articles on SQM over at SeekingAlpha.com.
Thank you Ron H & Pete Ewing for your comments. Very good. Keep ’em coming.
Got sick of this idiot and had to report him to the SEC and FCC to get them to stop sending these carrot emails. No customer service replies and his money back is BS. He’s taunting SQM and has been for over a year.
Yeah – Buy this newsletter and I’ll send you more emails telling you to buy more newsletters for a higher price.
Ripoff and annoying!
So far, Mr.Doug Casey has touted a lithium company (in Canada-?). It doubled nicely within a coupla months and then pulled back but still, news keeps this one alive. Me, I bought Icon Energy Limited (ICN) on the AU exchange when it was .03 and .05/share presently .38.share. I am holding for ever because they are the ONLY company that has ever done what they said they would. THEY, not only are sitting on 5-7trillion cu.ft. of nat gas but havn’t even started on their other leases, which boys and girls, include ‘hot rocks baby'(geothermal)and more CBM natural gas. I believe, that for the next 10 years, before ALGAE hits the market , that nat. gas will be the hot commodity and is still trading super low. Remember, the ‘ shut in’ price of a gas well, to meet expenses is purportedly 3.50/1000 cu.ft. Me, I bought futures at 3.75 and holding for the next Katrina. jjv
today from wealth daily by jeff siegel he is pushing a co. producing what he calls a ” negawatt box” as a fifth fule which could make many x % gain if you sub. his alternative energy letter. do you know what he is talkng about? thanks for your information. keep up the good work. bbpernell