“A Triple in Steam” Megashift Profits

By Travis Johnson, Stock Gumshoe, March 24, 2009

InvestorPlace is certainly helping Nancy Zambell push the marketing message pretty hard for her new Buried Treasure Under $10 newsletter — who knows, if they keep this up we might be hearing as much from Nancy as we do from fellow InvestorPlace newsletter editors Louis Navellier, Robert Hsu and Tobin Smith.

More power to her — I have no idea whether or not her strategies are going to be helpful, but I like the fact that she keeps pushing this idea that “Gumshoe Investing Works!” in her ads. Anyone who uses that most delightful word in the English language so often can’t be all bad, right? Your friendly neighborhood Stock Gumshoe might be a bit biased here.

But that doesn’t mean Zambell gets a free pass — she claimed some ridiculous returns in the last ad we saw, which I told you was probably a teaser for a microcap South Carolina pipe company (she’s still pushing this “stimulus beneficiary” company, all the details are here if you missed the first article), and she’s making some pretty florid claims today about a stock that she says should triple.

And it appears that I need to officially petition Congress to make this “geothermal week”, because this is the second geothermal teaser ad in a row to get the good ‘ol Gumshoe treatment.

Nancy starts of big in the ad — I can’t do this justice without sharing it all, so here’s a taste:

“There’s a social megashift going on, and your broker, your advisor and the bobbleheads on TV don’t get it.

“There’s phony change, and then there’s real change.

“Phony change is when US Airways paints their planes grey and says they’re really getting serious.

“Phony change is when BP makes their logo look like a darned sunflower and tells us they’re here to save the planet.

“Phony change is when the 500th solar panel company floats a massive IPO—and vanishes into the smog.

“There’s phony and there’s real, and if you know the difference, now’s the time to clean up. I’m Nancy Zambell, and I can help.”

Good stuff, right? But we’ve got to work a little harder to set up the straw man if we want to argue that we’re facing a “hurricane in consumer values:”

“You want a Coke, a Band-Aid, a Kleenex or Smart Money’s Jim Cramer?

“How yesterday.

“It’s not just that Coca-Cola, Johnson & Johnson, Kimberly-Clark, Jim Cramer and other “staples,” other icons, face tough times.

“They find themselves on the wrong side of a revolution.

“They are emblems of the past.”

Just can’t help but throw in a dig at Jim Cramer there, eh? It’s kind of piling on at this point, isn’t it, after Jon Stewart disemboweled him for the Comedy Central generation?

So Nancy essentially goes on to say that this “values shift” is coming as Americans recover from the consumer excess and the loss of wealth that almost all of us have touched in the past decade … and she somehow draws this line to tell us about the great business culture at Zappos, the SmartyPig social savings program, and IBM’s “Big Green Innovations” environmental initiatives.

Huh? OK, I guess it all makes sense if you read fast, but essentially the whole ad to this point was working up to the fact that she’s got a geothermal stock to tease you with … here’s how she spins it:

“Geothermal plants don’t get the glamorous write-ups that solar and wind-powered generators get, but one small company has made the breakthrough that changes all that.

“The breakthrough is this: The power plant arrives on the back of a truck.

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“The modular construction of these geothermal plants slashes capital costs and makes renewable energy available in locations you just can’t build coal-fired generators.

“Anaheim just went thermal. Phoenix will do so later this year.

“And Indonesia, with the 4th largest population in the world, will be 40% geothermal within 5 years.

“In each case, a Utah start-up is using its quick-build geothermal plants to grab business.”

And there is a bit of specific teasery about why this company should benefit now:

“The American Recovery and Reinvestment Act (ARRA) targets money for clean energy projects that produce jobs. That lets solar out, closely followed by wind. Smart-grid companies win but geothermal walks off with the big prize.

“Our Utah company is spectacularly well-positioned because of the speed of implementation it offers. ARRA money has to be spent by 2012.

“This is a $3 stock aiming at $16.”

So of course, we’re talking about a company that we’ve talked about many times before — Raser Technologies (RZ).

And just to be clear, Anaheim is “going thermal” now, and Phoenix is planning to soon, and Raser Technologies does use modular generators in its power plant designs … but that doesn’t mean that Anaheim is hauling in its own geothermal plant on the back of a truck, those “going thermal” teasers are for the fact that Anaheim has bought power from Raser’s first plant, the one that they commissioned not long ago in Utah.

The details of Anaheim’s purchase are here, but essentially they’re buying 11 megawatts of electricity from this Utah plant, enough power for about 10,000 homes — which I’d argue is one step in an evolution, not quite yet a revolution.

Raser is one of the more interesting companies in the geothermal space, and as such it’s been heavily teased before — most notably about a year ago when the Oxford Club folks told us it was going to “put OPEC on notice” thanks to its “secret discovery in the Utah desert.

Of course, back then the stock was much more expensive, too — that was close to a year ago, and the stock was mostly flitting around $10 (I assume that when Zambell calls this a $16 stock she’s referring to the highs of January 2008, when RZ did get into the high teens) … today, as she noted, it’s right around $3 (actually more like $3.70, but close enough).

So what do these guys do? Well, as we noted yesterday, Raser’s big contribution to the geothermal business is not necessarily the modular plant design they use, which allows them to build more quickly, it’s the places where they can generate electricity. Most geothermal plants require very high temperatures, well over 400 degrees fahrenheit from what I read, to generate steam and turn turbines to generate electricity, so they find it deep beneath the earth in very hot spots like the Geysers in California, which is where the vast majority of US geothermal generation takes place now.

Raser’s design adds some kind of proprietary process with a chemical heated by the “warm” water (200 degrees or so) that they generate from cooler prospective geothermal sites, and that chemical (or whatever it is — I’m just assuming a chemical) has a lower flash point than water, so as long as the temperature is warm enough (above 180 degrees or so), steam is generated to turn the turbines on their string of generators — they call this a “binary” plant, I guess because it uses two different substances (water and that proprietary “lower flash point” compound).

I don’t know much more about the specifics, but Raser is pretty good about running through graphs and charts and videos on their website if you’d like to learn more. What I particularly don’t get is why lowering the flash point by 30 degrees or so (from 212 degrees for water to 180 degrees for this proprietary formulation) means that the geothermal heat source can be 250 degrees lower — they say that this new system becomes effective at 200 degrees, while “traditional geothermal” projects seem to have demanded 450 degrees — seems like a lot of middle ground in there. I assume that information is explained somewhere, but I don’t have the expertise to explain it to you so I won’t try to dig it out.

This technology, if it does end up being as effective and efficient as Raser tells us, would open up a lot more territory to geothermal power generation — almost all of the Western states would have big potential sites, including Utah where they’re starting but also New Mexico, where a new plant is planned, and Oregon, where another is planned, and potentially Washington, Idaho, anywhere in Nevada … really, according to the may they use it looks like anything anywhere near the Rockies probably has potential.

The generators, by the way, are custom made for Raser by UTC Power, which is a part of the industrial conglomerate United Technologies (UTC) and also seems to own a lot of this technology that Raser is licensing, so that’s a possibly more insulated big company with a teensy little bit of potential geothermal upside if this becomes a huge business.

And I do mean “huge” — this is probably something on the order of an R&D project for UTC generally, UTC Power is by far their smallest business unit and it works primarily on fuel cells, most of UTC’s money comes in from Pratt and Whitney jet engines, Carrier air conditioners, Otis elevators, Sikorsky helicopters, and Hamilton Sundstrand products, among a few other specialized divisions. UTC power has less than 1,000 employees, about 5% of the size of the next smallest division (Sikorsky). United Technologies advertises their fuel cell technology (for buses, too, in addition to small power plants), but the more forward-looking “clean” initiatives are an almost infinitesimal part of the overall business.

Raser Technologies also owns some engine design patents, particularly for electric motors and plug-in hybrids and control systems, that they call their “Symetron” technology. They say that their electric motor technology is more efficient, and that they’re trying to license their technology to bigger companies that can push forward with development.

And they’ve certainly gotten lots of attention — Gene Marcial (of BusinessWeek) called them a “perfect Obama play” because of the renewable energy push, and I’d guess that Ormat Technologies and Raser are probably the largest and most advanced companies that are close to “pure plays” on geothermal energy. That doesn’t mean other companies aren’t involved, of course, we talked about a bunch of them yesterday, and there are probably multiple Western utilities that are either developing or exploring potential geothermal projects that likely won’t move the needle for them in a big way, as well as companies like United Technologies and General Electric that touch on geothermal in some way.

But Raser, at least, probably remains the “most teased” geothermal stock that I’ve written about — that may or may not mean that they’ll ever end up being profitable, but it probably means we haven’t heard the last of them, one way or the other. There is a tiny bit of analyst coverage, and they see RZ losing about half as much this year as last, so that’s a good sign, but they do have many years of large losses to make up for, so a leveraging of their technology into some bigger deals would seem to be required for them to profit dramatically in the near future.

Still, as we’ve seen from the moves in this stock over just the last two years, the business fundamentals don’t necessarily mean all that much to the stock price, the business has steadily advanced without obviously dramatic changes, and the stock has bounced from $5 to $16 or so, and back down to $3 — it’s all about what investors think about their future prospects, and those forward-looking thoughts have clearly gone through some bipolar mood swings so far.

Let us know if you’ve got anything left to say about geothermal energy, or if you’ve a yen for Raser Technologies with a comment below.

And I don’t think Nancy Zambell’s service has been around for long enough for anyone to form much of an opinion, but if you have subscribed and you’ve got something to share about Buried Stocks Under $10, please click here to let us know — or if you’ve ever subscribed to any of the other InvestorPlace newsletters from Navellier, Robert Hsu, Toby Smith, Richard Young or others, click here to share your thoughts on any of those.

Happy Investing!