“Tiny $0.80 Geothermal Company Is Now Generating Revenue: BUY!”

By Travis Johnson, Stock Gumshoe, March 2, 2009

That’s the subject line of a recent ad from Jeff Siegel for his Green Chip Stocks newsletter, as he issues a new buy recommendation on a stock that he has written about several times before.

It’s a geothermal 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 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 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 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).

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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 (HTM)

I wrote about this stock close to two years ago, 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 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 — 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 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 is in the plains). And as natural gas 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) on the small side to Calpine (CPN) 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 (RZ), which has also been teased many times — they’re working on lower-temperature geothermal generation in Utah and elsewhere; and Ormat Technologies (ORA), 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.

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