In this article, we discuss 6 best geothermal stocks to buy. If you want to skip our detailed analysis of the geothermal market and see more stocks in this selection, check out 3 Best Geothermal Stocks To Buy.
Geothermal energy refers to heat from within the sub-surface of the earth. Geothermal energy is carried to the surface of the earth via water or steam. It is used for heating and cooling purposes, as well as generating clean electricity. However, electricity generation is possible only near active geothermal regions. Geothermal energy fulfills electricity and heating demands for countries like Iceland, El Salvador, New Zealand, Kenya, and Philippines.
Demand For Geothermal Energy
Geothermal heating demand is surging in Europe, which is currently undergoing an energy crisis. The European governments are scrambling for affordable alternative energy sources to replace gas heating, as per research from Rystad Energy. Total installed capacity of geothermal heating is expected to exceed 6.2 GWt in 2030, a 58% increase from the current total of 3.9 GWt. This expansion in geothermal capacity is expected to cost about $7.4 billion. Although geothermal technology has been in the market for decades, it might just be on the precipice of mainstream adoption. Widespread use has been limited as it incurs high development costs compared to other sources of energy, and there are risks associated with drilling success rates and subsurface atmosphere.
However, to combat high energy prices, there has been an influx of new firms in the geothermal space. Many of these players have been dabbling in the oil and gas market already, and now they are initiating pilot projects related to geothermal energy, hoping to resolve the energy shortage. Daniel Holmedal, senior analyst at Rystad Energy, described the importance of geothermal energy on October 3:
“Geothermal is a virtually unlimited source of consistent energy that could play a crucial role in addressing energy security and affordability in the decades to come. As European countries move to decarbonize their power mix and chase secure sources of heating for the winter months in light of geopolitical tensions, investments in geothermal projects will skyrocket."
The Russian war on Ukraine has intensified Europe’s energy crisis, and Germany is now investing in geothermal projects and has budgeted to spend over $1.5 billion by 2030. In the last decade, installed capacity in Germany has doubled from 200 MWt in 2012 to 400 MWt in 2022. By 2030, the geothermal capacity is forecasted to double yet again and reach 850 MWt. Meanwhile, the Netherlands is scaling its geothermal activities and it will have more than 1 GWt capacity by the end of this decade. The country expects to spend $1.1 billion in the expansion process.
Photo by Mark Kuiper on Unsplash
The United States is also encouraging the adoption of geothermal energy. The recently passed Inflation Reduction Act of 2022 stipulates that US residents who install geothermal heat pumps in their homes from January 2022 through the end of 2032 are eligible to claim federal “residential clean energy credit,” which equals to 30% of the total installation costs. Starting in 2033, the subsidy will be cut to 26% and it will drop to 22% in 2034, before discontinuing entirely in 2035. Investors are on edge in the current stock market, and in order to play the boom in the geothermal space, some of the best stocks to buy now include Climeon AB (publ) (STO:CLIME-B.ST), Berkshire Hathaway Inc. (NYSE:BRK-B), and Chevron Corporation (NYSE:CVX).
We selected the most prominent companies working in the geothermal sector for this analysis. We picked these stocks based on future growth potential, underlying business fundamentals, and optimistic analyst coverage. We have arranged the list according to the hedge fund sentiment around the securities, which was assessed from Insider Monkey’s database of 895 elite hedge funds tracked as of the end of the second quarter of 2022.
Best Geothermal Stocks To Buy
6. Ormat Technologies, Inc. (NYSE:ORA)
Number of Hedge Fund Holders: 17
Ormat Technologies, Inc. (NYSE:ORA) was founded in 1965 and is based in Reno, Nevada. The company engages in the geothermal and recovered energy power businesses in the United States, Indonesia, Kenya, Turkey, Chile, Guadeloupe, Guatemala, Ethiopia, New Zealand, and Honduras. It operates through three segments – Electricity, Product, and Energy Storage. Ormat Technologies, Inc. (NYSE:ORA) paid a per share quarterly of $0.15 on August 31.
On August 16, Ormat Technologies, Inc. (NYSE:ORA) signed two contracts that will bring in a combined $100 million in revenues. The company’s contract with New Zealand's Contact Energy will offer engineering, procurement, and construction services for a new 59 MW geothermal power plant in New Zealand. Ormat Technologies, Inc. (NYSE:ORA) also made a 6 MW supply contract with Sarulla Operations in Indonesia, where it will supply the Ormat Energy Converters to improve the power plant's performance.
JPMorgan analyst Mark Strouse on August 8 raised the price target on Ormat Technologies, Inc. (NYSE:ORA) to $97 from $90 and maintained a Neutral rating on the shares. The analyst thinks the Inflation Reduction Act will accelerate growth in an "already inevitable energy transition to renewables." Although alternative energy stocks have gained since the initial news of the bill, there is further upside for most companies in the space, noted the analyst.
According to Insider Monkey’s data, 17 hedge funds were bullish on Ormat Technologies, Inc. (NYSE:ORA) at the end of June 2022, with combined stakes worth $330 million, compared to 16 funds in the prior quarter worth $286.7 million. Ian Simm’s Impax Asset Management is the largest stakeholder of the company, with more than 3 million shares worth $238 million.
Like Climeon AB (publ) (STO:CLIME-B.ST), Berkshire Hathaway Inc. (NYSE:BRK-B), and Chevron Corporation (NYSE:CVX), Ormat Technologies, Inc. (NYSE:ORA) is one of the best geothermal stocks to consider.
5. Eversource Energy (NYSE:ES)
Number of Hedge Fund Holders: 32
Eversource Energy (NYSE:ES) is based in Springfield, Massachusetts, operating as a public utility holding company engaged in the energy delivery business. The company has four segments – Electric Distribution, Electric Transmission, Natural Gas Distribution, and Water Distribution. Eversource Energy (NYSE:ES)’s Geothermal Pilot Program will generate an affordable and low-carbon source of heating and cooling for residents and businesses. It is one of the best geothermal stocks to buy.
On September 16, Eversource Energy (NYSE:ES) declared a $0.6375 per share quarterly dividend, in line with previous. The dividend was distributed on September 30. Eversource Energy (NYSE:ES) delivers a 3.38% dividend yield as of October 6.
Mizuho analyst Paul Fremont raised the price target on Eversource Energy (NYSE:ES) to $94 from $91 and reiterated a Neutral rating on the shares. The analyst updated the target to factor in present market multiples.
According to Insider Monkey’s data, 32 hedge funds held stakes worth $705.6 million in Eversource Energy (NYSE:ES) at the end of June 2022, compared to 29 funds in the prior quarter worth $910.2 million. Stuart J. Zimmer’s Zimmer Partners is the largest position holder in the company, with more than 2 million shares worth $172.5 million.
In addition to Climeon AB (publ) (STO:CLIME-B.ST), Berkshire Hathaway Inc. (NYSE:BRK-B), and Chevron Corporation (NYSE:CVX), Eversource Energy (NYSE:ES) is one of the most prominent firms working in the geothermal sector.
4. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 59
Chevron Corporation (NYSE:CVX) announced in February 2021 that it is making an investment in Baseload Capital AB, a Swedish private investment company engaged in developing and operating low-temperature geothermal and heat power assets. Chevron Corporation (NYSE:CVX)’s investments in geothermal power represent its continuous efforts to transition to a lower-carbon future. It is one of the best geothermal stocks to invest in.
On September 26, Chevron Corporation (NYSE:CVX) and Mitsui Oil Exploration Co., Ltd (MOECO) announced a Joint Collaboration Agreement to survey the technical and commercial suitability of advanced geothermal power generation in Japan. Chevron Corporation (NYSE:CVX)’s subsurface resources and technologies paired with MOECO’s extensive knowledge of Japan's geothermal resource geology and its longstanding track record of responsible resource development will enable the companies to efficiently test emerging geothermal technology. This project has meaningful expansion potential.
Piper Sandler analyst Ryan Todd on September 12 raised the price target on Chevron Corporation (NYSE:CVX) to $190 from $189 and kept an Overweight rating on the shares, citing a constructive stance on the integrated oils group.
According to Insider Monkey’s data, Chevron Corporation (NYSE:CVX) was part of 59 hedge fund portfolios at the end of June 2022, compared to 53 in the last quarter. Warren Buffett’s Berkshire Hathaway is the leading position holder in the company, with 161.4 million shares worth $23.3 million.
Here is what ClearBridge Investments Large Cap Value Strategy has to say about Chevron Corporation (NYSE:CVX) in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
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Disclosure: None. 6 Best Geothermal Stocks To Buy is originally published on Insider Monkey.