2 Clean Energy Buys, 1 Sell
Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Clean energy is a hot topic today. However, companies in the space are still trying to find a way to build lasting businesses. That can lead to some interesting opportunities, like Ormat Technologies (NYSE: ORA) and Clean Energy Fuels (NASDAQ: CLNE). Investor enthusiasm for a new idea, however, can sometimes mean big risks, as Tesla Motors' (NASDAQ: TSLA) rapid appreciation shows.
Harnessing the Earth's energy
Ormat designs, develops, builds, owns, and operates geothermal power plants (64% of 2012 revenue). It also designs and builds its own equipment, which it uses itself and sells to others (36% of revenue). The vast majority of the company's equipment sales take place in foreign markets, while the bulk of the company's electricity sales are domestic.
A geothermal plant takes water heated by the earth and uses the heat to generate electricity. It is typically a very clean source of power. Although plants tend to cost a lot to build, they have very low operating costs because of the use of naturally occurring heat. At the end of 2012, the company owned and operated 18 power plants producing a total of 575 megawatts of electricity. It has several plants either being constructed or in the planning stage.
The company's top line has grown steadily over the past decade. Earnings have been varying, but the company was profitable in all but the last two years. A non-cash impairment charge was largely responsible for the large 2012 loss and a tax allowance caused the 2011 loss. These two items overshadowed a largely stable electricity business.
Ormat pays only a token dividend, so income investors shouldn't bother looking at this hybrid utility. The shares are well off of their all-time highs, and could be a nice long-term investment option for those seeking an environmentally friendly energy play. That said, top-line growth is likely to be slow at best.
Switching to natural gas
Clean Energy Fuels is at the forefront of the effort to switch the United States from gasoline to natural gas. The company has a division that switches vehicles so they can run on natural gas and it owned, operated, or supplied 348 natural gas stations in 32 states at the end of 2012.
With the price of natural gas near historic lows because of increased supplies, many are calling for the fuel to be used in more and more applications. Fleet vehicles have been the first movers here, with companies like Waste Management slowly switching their fleets over to the fuel.
The next big segment that Clean Energy is looking to switch is America's trucking fleet. To that end, the company has built around 70 natural gas stations across the country's interstate highway system. Although only a handful are up and running today, if even a small portion of the country's truckers start using natural gas, the business could quickly gain scale.
This is not a low risk investment. The company hasn't made money in more than five years because of the costs associated with building out its natural gas network. The shares are a leveraged bet on a natural gas future for more aggressive investors.
Tesla recently turned in its first profit. That's impressive for a car company built from scratch and focused on making only electric cars. That said, the company makes a competitive vehicle, but it is expensive. Until it can create a car for the mass-market, it will likely have a hard time maintaining a profitable operation.
In addition, electric cars have a limited range and few options for refueling. Tesla recently announced plans to build electric charging stations across the country. That's an expensive proposition that suggests that profitability is likely to be fleeting over the near-term. However, in order for electric cars to truly catch on, someone has to build such stations.
While Tesla has exciting technology, the share price advance from around $30 a share to $100 or so in less than a year is just too far too fast, especially when the outlook for continued profits is cloudy. Making matters worse, the company recently decided to stop providing information about its sales backlog. That's a worrying sign.
Investors who have taken the ride up should pull some profits off the table while they still can.
The three stocks above have vastly different angles on the environment. Ormat is, at its heart, an electric utility with a fairly stable business that's been hidden by one-time charges over the last two years. Clean Energy is a bit of a high stakes bet on the industrial switch to natural gas fueled vehicles. So long as natural gas stays cheap, however, the switch appears to be catching on. Tesla makes great cars, but its gotten ahead of itself. Watch it for a major pullback.
Tesla's plan to disrupt the global auto business has yielded spectacular results. But giant competitors are already moving to disrupt Tesla. Will the company be able to fend them off? The Motley Fool answers this question and more in our most in-depth Tesla research available. Get instant access by clicking here now.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels and Tesla Motors . The Motley Fool owns shares of Tesla Motors . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!