A Long-Term Play On Diversity In Renewable Energy

Investors are always looking for the next big thing, and those who favor the energy space are no different. It has been known for some time that the world is moving away from fossil fuels, but what is still not clear is what it is moving towards. Will it be solar, wind, or wave power that generates the bulk of the electricity in the future, or will it be nuclear technology, now that there has been a breakthrough in that field? All of those will probably play a part, but the most likely scenario is that the world will depend on a combination of renewable energy sources in decades to come.

Given that, the trick for long-term investors is to find renewable energy sources that are currently under-utilized, and a recent article by Haley Zaremba on Oilprice.com highlighted one of them. In the piece, Haley discusses the advantages of geothermal energy, most notably that it is what is known as "baseload power". Energy derived from the heat at the Earth's core is constant, so doesn't need any complex and expensive storage facilities, giving it an advantage over things like solar and wind that produce only when the sun shines or the wind blows.

As I read Haley's excellent piece my mind, as it usually does, turned to one question. If the potential of geothermal energy is about to be unleashed, how can investors profit from that? The choices are somewhat limited, but there is one company that catches the eye.

Ormat Technologies (ORA) is a company that generates and distributes geothermal powered electricity. They are not a new, disruptive force. They have been around since 1965 and are listed on the New York Stock Exchange. They may not be particularly sexy, but they are starting to look like a company whose time has come. They have been building plant, infrastructure, and expertise in geothermal energy for around sixty years, so are ideally placed to take advantage of improved technology in the field and, more importantly in some ways, expanding interest in geothermal power from governments around the world.

That maturity has some significant advantages. Ormat, for example, is far from the kind of company all too common in the alternative energy space, where profit is just some distant dream. They have been making money for literally decades, and they do pay a dividend, albeit only one that equates to around 0.5%. However, if you are looking for an "undiscovered" stock with massive short-term potential, ORA isn't that. Its biggest moment in the sun came at the end of 2020, when everyone was looking for the next big thing, and ORA's chart started to look like that for one of the meme stocks that were so in vogue back then.

You can see the spike and rapid retracement that was so common at that time on the three-year chart above, but what interests me more is what ORA has done since that, a steady climb in a difficult market that looks like real, sustainable momentum.

The one drawback is that the trailing P/E of over 75 and the PEG ratio of over 5 are both a lot higher than I would usually consider for a long-term investment. However, after a year when P/Es have tumbled, those numbers could actually be a good sign. It suggests that investors are looking at long-term potential rather than just at the next couple of quarters. Add in the facts that over 88% of the stock is held by institutional investors and that all of the Wall Street analysts that cover it have either hold or some kind of buy rating, and it starts to look like a classic stock to buy into over time.

If you are looking for a specific entry level, then a pullback to around $83 would be a good starting point, but the gradual upward grind over the last year or so makes ORA a prime candidate for accumulating through dollar cost averaging. That is the strategy of buying equal amounts of a stock at regular intervals, say each month, regardless of the chart, designed for accumulation rather than speculation. That would be my preferred approach here, but with geothermal energy likely to become more significant over the next five to ten years, ORA is one to consider, however, you get involved.