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Mampilly’s “Untapped Ocean of Energy Found Under All 50 States”

What's the geothermal stock being teased by Profits Unlimited?

My eyes lit up when I saw the latest ad from Paul Mampilly for his Profits Unlimited newsletter — more geothermal! Woohoo! Even the ad looked familiar — we saw quite a few of those ‘heat map’ images of the US five or ten years ago when geothermal stocks “heated up,” so it gave me a nice moment of flashback to the early days of Stock Gumshoe.

(Today, incidentally, is Stock Gumshoe’s 10th birthday… I quietly launched this site on March 7, 2007 with a teaser solution about one of the many “next Berkshire Hathaway” ideas that come along every year… and perhaps it’s appropriate that that particular stock, Brookfield Asset Management, has pretty much tracked with the S&P 500 over the past decade despite the ribald and rapturous promises made on its behalf. I guess it’s appropriate that our 10th birthday has been equally quiet so far, despite the fact that probably 100 times as many people will read this article as read that one in 2007. And yes, mostly it’s quiet because I haven’t come up with a good way to celebrate. Any ideas?)

So anyway, geothermal teasing got revved up early on in Stock Gumshoe’s first year. I have some fond memories of what was in many ways a “bubble” in a small number of heavily touted geothermal stocks, which were benefitting from super-high oil and gas prices that drove interest in “renewables”.

Back in 2007 we were on the verge of a couple years of teaser pitches using terms like “Sonoma Grizzly Power” and “Slow Volcano Power” and “Thermogenic Oil,” all phrases invented to help pitch little junior geothermal stocks… most of which are no longer with us and some of which were downright scammy operations. Raser Technologies US Geothermal Sierra Geothermal, Polaris Geothermal, Ram Power Western GeoPower… there were quite a few little guys active seven or eight years ago, some of them very well-connected with big-name resource investors, and they all collapsed quite dramatically.

Some of them have come back to life in recent years, and there are a few real geothermal businesses in the US and elsewhere around the world that do make money, so what sort of pick is Paul Mampilly making now as he tries to reinvigorate investor enthusiasm in the geothermal space?

Let’s check the ad to see what clues he provides. First, here’s the official NREL version of that geothermal map — you can click on it for a larger version:

Now, the big picture from Mampilly that gets the ad going, referring to a simplified copy of that map (the map is from 2008-2009, incidentally, not a lot of study has gone into updating it since):

“You see, the colors of this map reveal a huge untapped energy reserve that spans across the entire United States.

“A relatively unknown energy that is under the Empire State Building in New York City … beneath the roller coaster rides at Disney World in Orlando … below the Sears Tower in Chicago … and under the shiny lights of the Las Vegas Strip.

“And this energy is so expansive and untouched, the Earth Policy Institute recently reported that there’s ‘50,000 times more [of this] energy contained in the first six miles of the Earth’s crust than in all the planet’s oil and natural gas resources.’

“That’s enough energy to power the United States for the next 30,000 years.”

That’s true as a scientific notion, though not necessarily as an economic one — in mining parlance, I suspect most of that geothermal potential would be classified as “inferred resources”, not as “proven and probable reserves” … we know the heat is there, but it’s not so easy to produce it economically except in a few places, like the Geysers in California, or in Iceland, where there’s good infrastructure and access to geothermal resources fairly close to the surface… and geothermal plants are not cheap, so they have to compete with the price of electricity generated from solar panels, or natural gas plants, or nuclear power.

New technologies continue to advance for geothermal production, making it feasible to generate electricity in slightly less perfect spots than the Geysers, and at lower cost, but that doesn’t mean you can make money by just plunking a drill bit into the ground anywhere that shows orange or red on that map.

Geothermal power has been a hot topic more than once in the last 50 years, and it may be that we’re at an inflection point where more money goes into geothermal — past inflection points for geothermal have come because of rising oil and gas prices, or because of strong tax incentives for renewable energy. Or, perhaps, we could also be at such an inflection point for utility-scale solar or wind farms that geothermal will have trouble competing… I don’t know, I just want to raise the possibility for you to make sure you’ve got enough skepticism on hand to counter the hype of “power the world for 30,000 years.”

And then the meat of the tease:

“And here’s the really exciting news … I’ve discovered a little-known company that is at the forefront of it all. They have the game-changing technology that harnesses this energy and converts it into electricity.

“Make no mistake, this relatively unknown Midwestern company is positioned to disrupt the entire energy industry … it could be bigger than ExxonMobil, Chevron and Shell Oil combined … and make investors John D. Rockefeller-type fortunes.

“Those who invest in this company now will have the chance to mint millions … and all it takes is an initial stake of just $50 if you would like.”

You should NEVER go into an investment looking for John D. Rockefeller-type fortunes, of course — and that kind of thinking, touted so breezily in an investment newsletter ad, is corrosive to rational thought.

They do not, of course, guarantee that their small company will be bigger than ExxonMobil, Chevron and Shell combined, but just the mentioning of it makes us stop worrying about whether we’re paying 50 times earnings or 10 times earnings for a stock — it doesn’t matter if it’s a little expensive if it’s going to be the next global monopoly, right?

And yes, as the teases note, Warren Buffett has invested millions in geothermal energy — though he did so quite indirectly almost 20 years ago, through the fact that Berkshire’s large utility operation owns ten geothermal power plants in the other substantial operating geothermal site in the US, the Salton Sea in Southern California (there have sometimes been plans for possible expansion at that site, but they haven’t actually built a new generation project there since 2000).

More from Mampilly on the specific company being hinted at:

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“At the center of it all is an innovative company in the Midwest … with over 80 patents to harness this fuel’s power.

“Shareholders in this $2 billion firm include institutions like Vanguard, BlackRock and American Century, and it has deals lined up in some of the biggest energy-consuming countries in the world, including: China, France, India, Japan and Russia.

“And I believe, if everything falls into place, its stock will hand early investors the opportunity to make as much as five, 10, even 20 times their money in the months ahead. That’s millions of dollars for those who want in, starting for as little as $50.”

So who is it? Thinkolator sez Mampilly must be teasing Ormat Technologies (ORA). And yes, that’s despite the fact that the references to “Midwestern” are not a good fit for Ormat, which is headquartered in Nevada — I don’t know whether that’s a red herring or an exaggerated view of what “midwestern” means.

Thanks to an earnings beat a week ago, combined with the attention of Mampilly’s large-scale newsletter, ORA is no longer at $50 like it was back in January and late last year — it has surged up to $58 a share, with a market cap now of about $2.9 billion.

Ormat is certainly the largest pure-play geothermal stock in the US, and they are both a designer and builder of geothermal power plants and equipment, and an operator of a few facilities (the revenue of late is roughly 1/3 from sales — engineering, equipment and construction; and 2/3 from electricity sales from their operated facilities).

They’ve been around for a long time, and they were probably the easiest and least speculative geothermal investment you could have made back in 2007 and 2008 (though the valuation was tough to swallow at the peak back then as well, when it briefly had a trailing PE of 80), though it was the junior project developers like US Geothermal and Polaris and Sierra and Ram Power that were more often teased and touted by newsletters (ORA shares are now slightly above where they were at the January 2008 peak — they bottomed out in late 2011 at around $15… most of the speculative geothermal stocks from a decade ago are down at least 75% from their peak, in some cases they’re down 99-100%).

ORA shares have done very well of late as interest in geothermal seems to have perked up a bit, and as Ormat has continued its recovery from a tough 2010-2012 period to grow both revenues and earnings, and they now also have a backlog of orders that’s roughly equal to a year’s worth of revenue… which isn’t a lot for an engineering company, but does at least provide some baseline for current-year expectations.

That doesn’t mean they’re “on fire”, at least not when it comes to actual financial performance — you do probably have to read between the lines and inject some “story” optimism in order to get excited about Ormat. The stock posted earnings per share of $2.46 in 2015, $1.90 in 2016 ($2.19 non-GAAP), and is predicted by analysts to earn $2.31 in 2017, $2.62 in 2018 and $2.71 in 2019.

That means buyers of the stock today are paying more than 20X 2019 earnings — that might work out, particularly if the optimism that shows in analyst estimates rising over the past year is warranted, but it’s a lot to pay for a company with relatively slow growth (that’s roughly 8%/year earnings growth from 2016-2019).

So it seems to me that it’s a little hard to buy based on the fundamentals right now — which means you need to have some real confidence in the growth story and in Ormat’s ability to substantially outperform those analyst expectations. That’s the skepticism you can use to counter the dreams of greed that might be percolating in your brain… and as for the optimism, you might start with the company’s own 2016 investor presentation.

The rub, of course, is that most of the big-picture comments and the “this will revolutionize the world” quotes are still from 2008 or 2009… and, in fact, many of the most enticing quotes in Mampilly’s ad were pulled from a 2008 LA Times story.

That doesn’t mean that geothermal is less real, but it does mean that we should probably be skeptical of those who promise huge and rapid investments in the sector or any other kind of dramatic change… the logic of this kind of energy was trumpeted from the rooftops in 2008 (and, before that, in 1980, and in the late 1960s), but geothermal plants are generally large, complex, capital-intensive (and often water-intensive) projects that often depend on government incentives or regulatory assistance, and they aren’t necessarily built easily or quickly.

So there you have it — I don’t know that I can get excited about Ormat at this price, but it is a real company that is almost entirely focused on operating and building geothermal plants, and they are profitable and growing. Beyond that, I’ll leave it to you to make your own call… it is, after all, your money. I’m pretty sure you’re not going to make “five times your money” in “the months ahead” on Ormat shares… but, of course, that depends a lot on how many months you think “in the months ahead” implies.

Any thoughts about Ormat or geothermal to share with the group today? Let us know with a comment below. Thanks for reading!

Disclosure: I do own shares of Berkshire Hathaway an but don’t own shares of any other company covered above. I will not trade in any covered investment for at least three days per Stock Gumshoe’s trading rules.

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brad
Guest
March 7, 2017 2:42 pm

Congratulations on 10 years……..

david
Guest
david
March 7, 2017 2:43 pm

As a longterm value investor my main concern here is what could happen to the dividend stream at the 30,000 year mark.
I just dont think that is predictable enough to take this risk at this valuation.
That is why I prefer the gold miners or physical bullion itself.
Even silver which I do like shorter term probably would tarnish in that timeframe but gold is inert and will last forever.

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dave
Member
dave
March 7, 2017 2:50 pm

What is great about this type of power generation is great, it is no where near able to meet the need and demand for power. It will always be a niche player. I think the future is actually nuclear power. Its clean and has no emissions to speak of. Where to put the spent rods is still an issue however. But building more dams won’t give us what is needed and coal is apparently out so nuclear will grow and become the production source that is growing and can meet the need of a growing population on earth.

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David Cregar
Member
March 7, 2017 3:59 pm
Reply to  dave

If it weren’t for three mile island and others, however I have to agree the energy of the future is going to be nuclear. Bill gates is already steaming ahead with his co. TerraPower. From what I have gathered not only has he signed a deal with China to build his new reactor dodging a mountain of U.S. red tape but that his reactor runs off of spent uranium, and, that there is already enough stored in the Midwest acres of water heater type tanks just sitting out in the open rusting away, enough to power his reactor for 700yrs.

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thinairmony
March 7, 2017 11:10 pm
Reply to  David Cregar

Well I don’t beleave everything I read. But I googled David’s claim about Bill . And it’s true here is a link of many backing it up- http://www.forbes.com/sites/jamesconca/2015/10/02/bill-gates-forges-nuclear-deal-with-china/ . But I beleave that a newer way will be invented that is safer.

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Sargam
Guest
Sargam
March 8, 2017 12:05 am
Reply to  thinairmony

It’s called thorium – the other nuclear reactor. But it was chosen, precisely because it doesn’t have dangerous by-products that can be used by the military to blackmail and endanger the whole world.

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Sargam
Guest
Sargam
March 8, 2017 12:06 am
Reply to  Sargam

“Not chosen,” I meant

Brian
Guest
Brian
March 8, 2017 7:57 am
Reply to  Sargam

Just don’t let it catch on fire….

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bradyoung
bradyoung
March 14, 2017 2:47 pm
Reply to  dave

Thorium reactors, or molten salt reactors, promise to use up those spent fuel rods. Their efficiency is far in advance of our prevalent types. And they are inherently safer.

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Philippe Blumenthal
Member
March 7, 2017 2:53 pm

Congratulations on 10 wonderful years…may the next decade allow you to keep building on the successes of the past decade.
Take your wife and children for a walk and a fun evening…you owe much of your success and insight to them…
Re Ormat, they are a utility company…no great future earnings that are unpredictable or any inflection points on the horizon…
I would have thought to mention that if you dig in your lawn about 1 yard deep, you can generate enough energy to keep your house warm in winter in most of the US….
Best
Philippe

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julian_satran
Member
March 12, 2017 4:04 am

I had, unwillingly, some Ormat shares many years ago. They moved from solar to geothermal and from Israel (hard on anything but technology) to US (easier on hot air business). They never had anything to show (technology or business model) but succeeded convincing several generations of investors to throw good money at poor businesses (charming pair of founders). Nuclear is probably the way to produce clean energy and all the green alternatives are just ignoring physics and make progress harder.

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sunglobes
sunglobes
March 7, 2017 2:54 pm

Just to clarify for everyone. Travis 100% correct…..The new geothermal energy pick PM is promoting is Ormat Tech (ORA) The name of the report is “How to Make 1000% in America’s Next Energy Megatrend” This information was included in the $47 subscription rate, along with his other picks listed in the ePortfolio. I also received another report titled “5 Technology Stocks That Will Power The Next Industrial Revolution.” That reports suggested: TER, MBLY, SSYS, DATA, and DLR.

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Tommy
Guest
Tommy
March 7, 2017 2:59 pm

One thing about geothermal is that the geothermal fluid needs to be returned to the formation or the formation collapses and no more steam gets produced – ie all the water is removed. So, just because there is geothermal energy below ground does not make it easy. In any of these plants, some gas (steam or or gas) needs to expand through a turbine to make power. At the end of the turbine condensation needs to take place and this takes a lot of cooling or “coolth” which comes from the air or from a cooling tower. A cooling tower is preferred because the temperature of condensation is much lower than with air and this makes the plant efficiency much better (kwh per pound of geothermal fluid used). BUT – this means water evaporates so a geothermal plant with a cooling tower needs as much fresh water as it does geothermal steam on a pound for pound basis. If you use the steam to make water then the formation depletes. If not, you need fresh water and a place to dispose of the cooling tower blowdown. If no cooling tower and only air cooling, efficiency is not as good as with water and is really terrible in the hot summer – just at the time most of the power is needed and the prices are highest.
Ormat indeed has this very problem and as an example at its Mammoth Springs plant it had a hybrid air and water system – where water was used in the summer.
Thus looking at the resource map is misleading. But of course, most of these newsletters are purposely misleading. With natural gas at $4/mmbtu and cost of a natural gas plant at less than $1000/kilowatt, geothermal is having difficulties competing.

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jack
Guest
jack
March 7, 2017 3:01 pm

note that mampilly and others of his ilk never reveal the number of shares they have bought in these amazing opportunities. Thanks for ID of the company.

Carbon Bigfoot
Guest
Carbon Bigfoot
March 7, 2017 3:24 pm

“Here we go again”. The greenies are having a “sh*t conniption” over shallow borings by fracking operations. And now we are going down to the magma chambers with borings to extract the heat with piping made of exotic alloys required to withstand the high pressure and corrosiveness—and do this nationwide nation-wide. I don’t think so.
In Greenland where the populace lives in proximity of volcanic activity this makes economic sense because it is a co-gen process, i.e., electric with high pressure steam from the magma heat extraction driving turbines, while the sensible heat in the condensate is close enough to pipe that energy to the natives for residential heating. Sounds efficient, but I have never seen any operating statistics and cost of plant maintenance requirements to evaluate it. Compared to importing NG or fuel oil— it may be a no-brainer.
In the US the only cost effective installation is if the plants are sited next to a caldera for heat extraction and even more effectively near an existing grid.
In 1982 I built a residence that had a high yield well and I installed one of the first geothermal HVAC Systems in that part of NE PA. In the summer it was essentially “free” air conditioning. In the winter not so much, as the delta-T of 52-35 deg. F water did not allow the compressor to extract sufficient energy and needed to be supplemented with an electric coil. Since it was forced air system, the specific heat of air is not as effective as water radiation heated by carbon fuels especially at 20deg. F or colder. To overcome that issue I installed two strategically located cast iron propane fired wood stoves and turned off the electric coil to supplement the geothermal heat pump.
More efficient–sort of.
When you get right down to it nothing beats carbon fuels for cost efficiency. Do solar panels or windmills heat and cool your house?–I doubt it.

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dplummer17
dplummer17
March 8, 2017 12:56 pm
Reply to  Carbon Bigfoot

of course it can. Electrical power can heat and cool, easily. Solar power is the answer

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Frank Rodriguez
Frank Rodriguez
March 7, 2017 3:27 pm

Travis,
Thank you for ten years of the best information out there in newsletter land. I sincerely hope and wish to see you double that in the coming years. As for celebrating I am going to open a bottle of PATRON I received for Christmas, and I wish you were to join me for a couple. Now I can tell the wife I am helping a very dear friend celebrate his 10th anniversary, and not get into to much trouble.
GOD BLESS

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michelg
Member
michelg
March 7, 2017 3:53 pm

I second Frank’s thoughts 100%. Your analyses are always very informative and thoroughly searched. They are definitely a cut above the rest. Well deserved kudos to you. If everyone was unbiased as you are, the investing community would be a better (and richer?) place.

SONIA ROBERTS
Member
March 7, 2017 3:38 pm

May Stock Gumshoe’s success and valued service continue for years to come.

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herbalix
Member
March 7, 2017 3:49 pm

Thanks Travis, for ten years of a great service and honest information on stocks out there.
Really glad my wife found your website and gave it to me.
We will have a glass of Ribera del duero wine on you and wish you and your team all the good things in the world.
Perhaps, as a celebration you should take out the Stock Gumshoe Team with families for a great day or evening somewhere you can all enjoy yourself.
You all are marvelous and really deserve to celebrate youselves as a team.

All the Best from Rosalina and Herbert

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sandy_shore
March 7, 2017 4:00 pm

Happy Birthday! Treat yourself to the 8th Wonder of the World…visit Australia and see the Golden Gumboot…https://en.wikipedia.org/wiki/Golden_Gumboot

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bobby k
Guest
bobby k
March 7, 2017 4:12 pm

Mampfilly worked for Stansberry a year or two back. Touted to be “the best”. His annual subscription cost was a few thousand. Paul wasn’t anything he was cracked up to be and was “let go.” I feel he and Kent Moors should start their own service and we should short everything they promote.

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Normally Dubious
Guest
March 11, 2017 8:09 pm
Reply to  bobby k

Funny you should mention doing the opposite of what is suggested. A while back, Moors wrote that we should buy XCO puts. I remembered only part of that insstruction and bought XCO stock and it had a nice ride, even if it was contrary to Moors instruction.

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Jere
March 7, 2017 4:13 pm

Travis: congrats on 10 years! hug you children, kiss your wife, thank your employees and take everyone out for dinner and don’t forget an ice-cream treat for desert!

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pam
Guest
pam
March 7, 2017 4:44 pm

congrats on 10 years!!!!!!

George Lennon
Member
George Lennon
March 7, 2017 4:48 pm

Glasses will be raised in your honor!

vivian
March 7, 2017 5:42 pm

happy birthday. I would suggest a scotch on the rocks to celebrate unless you have someone nearby to share the champagne.
As for Ormat Technologies, it happens to be a bonus global-investing.com stock pick. Despite being incorporated in Nevada (which is a major site for geothermal energy)it is controlled by an Israeli company and tech fund, so my global-investing.com search found it. I bought and so did many of my readers.
What makes ORA shine (ora means light in Hebrew) is that it is developing geothermal sites not only in the USA, but also in Guadaloupe, a French Caribbean island, and a lot in Kenya, the homeland of former Pres. Obama’s father.
Another reason to like ORA is that it is developing storage systems for utilities getting power from wind and sun–because the wind doesn’t always blow and the sun doesn’t always shine. This was a by-product of the excessive amount of geothermal source energy ORA got when it began which it didn’t immediately have a market for. So storage was part of its profits mix. And we are ahead more than the 14% booked year to date.

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John
Member
John
March 7, 2017 5:45 pm

Happy 10 years with Excellent analysis!

Kye
Member
Kye
March 7, 2017 6:02 pm

Travis – I have to ask. As a relatively new reader – have *any* of the stocks you have uncovered from these newsletters ever done extremely well or gone up over 100000% as they always claim? If so, did you own any of them?

Just curious. Great work as always.

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archegos2691
archegos2691
March 7, 2017 8:59 pm

Another play in parallel to ORA is US Geothermal ..stock symbol HTM. The stock is at ~$4 now, but read their investor presentation here http://www.usgeothermal.com/PDF/FINAL%20Corp%20Presentation%20Q3%202016_PDF_Version_091316.pdf look at the end ..their 5 year plans. If it is not ORA or HTM then the last company in this space would be Calpine CPN.

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Michael Jorrin, "Doc Gumshoe"
March 7, 2017 7:00 pm

Here’s to ten times ten more Gumshoe years! And that goes for Jen and the Gummie Sneakers as well!

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