Thursday, January 15, 2009

Geothermal Stock Review

Geothermal offers abundant energy with minimal environmental impact and it is located right beneath our feet. Geothermal systems use the Earth's stable ground temperature to heat in winter and cool in summer. Geothermal, (also know as Geoexchange) has been recognized by both the Environmental Protection Agency and the US Department of Energy as the "most efficient and environmentally friendly way to heat and cool a building." The downside of geothermal has always been the large up-front cost associated with the ground loop.

Obama's massive energy overhaul of federal buildings may justify the the up-front cost given the savings provided by geothermal in the long term. In addition, a new federal tax credit for geothermal systems was passed in 2008 (10% for commercial installations, $2000 for residential), which serves as an additional stimulus for the growing private sector market.

This is an opportune time to consider geothermal investments. Here are 4 geothermal companies located in North America.

Geothermal Heat Pump Stock Picks

Waterfurnace Renewable Energy (WFIFF.PK): Waterfurnace manufactures heat pumps for both residential and commercial buildings. According to their third quarter financial statements, the company is in good shape from a liquidity perspective. They eliminated an unused line of credit in the quarter, paid off the balance of outstanding bonds they had used to build their facilities and their current assets exceed total liabilities. Their cash flow from operations is growing. Waterfurnace paid a dividend of over 3%.

LSB Industries, Inc. (LXU): Their climate control division, which includes heat pumps and air handling systems, accounts for about 41% of sales. LSB has a strong balance sheet and their current assets exceed total liabilities. Both Waterfurnace, LSB boast strong balance sheets and inexpensive valuations. They are likely to receive a boost from the stimulus package.

Nevada Geothermal Power (NGLPF.OB): Although Nevada Geothermal is currently unprofitable, their Blue Mountain geothermal project has sufficient financing to take it to production, which the company expects near the end of 2009. As the expectation of revenue draws nearer, expect the stock price to appreciate.

Raser Technologies, Inc. (RZ): Raser is an energy technology company focused on geothermal power development and technology licensing. It has an innovative business model for developing geothermal power plants. Using United Technologies's modular PureCycle turbines, they can start development of a geothermal site with only a 10MW plant, and then expand rapidly. They are currently commissioning their first project, consisting of 50 PureCycle units in Utah. Having recently raised $20M in new equity capital, Raser appears to be adequately funded in 2009. This should be long enough for them to start earning revenues.

Geothermal's simplicity comes with low operating cost and low environmental impact, it has a long life expectancy and requires very little maintenance. It is a system that pays for itself in a short number of years. Geothermal is an efficient means of reducing our reliance of fossil fuels and the noxious emissions that come with them.

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