Last week, I was on a panel at the Inside Commodities Conference, and spent some time talking with Tyler Mordy, director of research at Hahn Investment. He's a top-down analyst (and CFA Charter holder) who had recently grown enthusiastic about Alternative Energy in general because the sector is so beaten down.
We agreed that the most-beaten down sector of alternative is geothermal power stocks, which Tyler finds frustrating because Hahn works with managed ETF portfolios, and there simply is no geothermal ETF. Nor is there likely to be, since one publicly traded company dominates the industry (Ormat Technologies [ORA]) and the rest of the geothermal Exploration and Production (E&P) companies are small to microcaps.
My current enthusiasm for geothermal stocks is why I recently began writing about them again. Last month, I published an overview of the eight geothermal power stocks that trade in North America, as well as an in-depth look at Ormat. I currently don't like Ormat's valuation, so I've been meaning to delve deeper into the five Geothermal E&P plays to pick the best. I have not yet had the time to write that article, but Martin Katusa at Casey Energy Opportunities has been following them for years.
Martin just did an interview with The Energy Report, and here is an excerpt of what he has to say:
Because there are so few players and [the geothermal power industry] is so front-CAPEX extensive, consolidation will have to happen... Whether it's Ram Power Corp. (RPG.TO, RAMPF.PK) taking over Nevada Geothermal Power (NGP.V,NGLPF.OB), Nevada Geothermal taking over Ram, Nevada taking overMagma Energy Corp. (MXY.TO,MGMXF.PK), Magma taking over Nevada or a merger between Ram and Magma—there's going to be consolidation. But the question of who will be the consolidator is still up in the air.That's the meat of it: his top picks are Ram Power, Nevada Geothermal, and Magma Energy. Like me, he's not currently a fan of Ormat. I recommend reading the entire interview; there's a lot more good information about each company, what he likes about them, and the sector in general.
You want to be in the company that's going to have the largest upside. We put Nevada Geothermal, Ram and Magma as buys because they're run by excellent people. They're undervalued compared to a year ago. In January, Nevada Geothermal was over $1. We recently wrote about it trading in the $0.50 range. Now the company's refinanced its debt and had a recent equity financing in which very smart money like Rick Rule participated in (as did we). It's producing close to 50 MW now and will be growing production in the very near future; and, better yet, Ormat Technologies Inc. (NYSE:ORA) just bucked up some big money to farm into one of its other projects. A year and a half ago, it wasn't producing; so it's so much cheaper today and is a much better company.