Warming Up to Geothermal Energy Stocks
Could geothermal energy power your portfolio? Here are two promising ways to play the industry.
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Human beings derive energy from every source imaginable. From oil wells to wind farms to solar to nuclear, we leave no stone unturned in the search for power.
What about energy derived from the Earth itself? This is the concept behind geothermal energy.
Geothermal energy exists within the Earth’s core and mantle. A volcano could be considered an extreme example of geothermal activity. More commonly, steam rising from underground reservoirs can be used to generate electricity.
The companies that produce and distribute geothermal energy tend to come in two types:
- Large, diversified energy plays that have a geothermal component
- Geothermal energy pure plays
Let’s take a closer look at one diversified company that features a geothermal component, and one highly focused specialist in geothermal energy.
Enel SpA
While Enel ADRs ENLAY trade over the counter in the U.S., this is no penny stock. With a market cap of $82.5 billion, Enel is an energy giant. Enel is based in Rome and was founded by the Italian government in 1962.
Subsidiary Enel Green Power is responsible for about 12% of Enel’s revenue. For decades, Enel Green Power has been capturing geothermal energy from the Tuscany region and recently expanded its operations into South America.
Right now shares of Enel are on a roll, having gained about 16% since March 7. In the process, the stock powered through significant resistance left from September/October of last year (purpledotted line).
On Wednesday the stock closed at its highest level in more than two years.
Earlier this week Enel’s rising 50-day moving average (blue) crossed above its rising 200-day moving average (red). This crossover is referred to as a golden cross (green arrow), a bullish momentum indicator.
GRADE: B+
Ormat Technologies
While Enel is an established, diversified energy company, Ormat Technologies ORA has a narrower focus. The Reno, Nev.-based company is focused almost entirely on geothermal energy. With a market cap of just $4.3 billion, Ormat is also considerably smaller than Enel.
Ormat Technologies has gained just 3% year-to-date, but while the stock has been consolidating, it has formed a cup and handle pattern (shaded yellow). This bullish pattern suggests Ormat could climb to $80 per share. First, the stock will have to climb above its 200-day moving average (red).
GRADE: B
Since geothermal energy is an area that is new to many investors, caution is warranted. For now, I recommend that those who choose to trade or invest in Enel or Ormat use limit orders and smaller positions.
At the time of publication, Ponsi was long ENLAY.
