Thursday, March 17, 2011
"Fukushima has been upgraded to six on the nuclear scale."
This comment was from the head of France's Nuclear Safety Authority on Tuesday night. He's talking about Japan's Fukushima nuclear plant – where four of its six nuclear reactors have been damaged following Friday's earthquake.
The Chernobyl disaster was scored a seven. Three Mile Island was scored a five.
We still don't know the full extent of the problem at Fukushima, but the disaster has lead to a worldwide review of nuclear strategies. Germany immediately closed seven of its 17 atomic plants. Switzerland suspended its plans to replace aging nuclear plants. U.S. regulators are pushing for a suspension of nuclear development until a safety review is conducted.
It's no wonder most uranium stocks are getting crushed. The Global X Uranium Fund, which holds a basket of uranium producers, is down more than 25% since Monday.
Some analysts believe more governments will push for solar energy as an alternative to nuclear. And solar companies have moved sharply higher following the news out of Japan.
A much better alternative is geothermal energy.
To generate geothermal energy, you drill holes thousands of feet below the Earth's surface to extract heat. You use that heat to generate steam and use that steam to turn turbines.
Already, geothermal hot spots generate electricity to power millions of homes. But few people are talking about geothermal because only limited areas around the world have been able to tap it easily. These areas lie along the "ring of fire" – the horseshoe-shaped area where about 90% of the world's earthquakes occur.
It's no coincidence that Japan sits on this ring of fire. In fact, 15 of the 16 largest earthquakes in the world took place along this ring.
After Japan's disaster, we might see geothermal replacing nuclear plants on this fault line. After all, geothermal is the only alternative fuel that's capable of "baseload" power generation. That's the minimum amount of power needed to meet energy demand on a 24/7 basis. Solar and wind can only produce power part of the time.
These replacements won't happen tomorrow... or even three years from now. But that doesn't mean we need to wait that long to see gains in geothermal stocks. If government officials consider this as an option at their review meetings in the next few months, geothermal stocks will soar.
Calpine, one of the largest utility companies in the U.S., uses this technology to produce electricity. And MidAmerican Energy is a leading supplier of geothermal energy. (The company is 80% owned by legendary investor Warren Buffett's Berkshire Hathaway.)
But my two favorite plays in the space are small-cap companies Magma Energy and Ram Power. They both trade on the Toronto Exchange for less than $1.50 a share.
Magma has geothermal plants in Iceland, Chile, and Nevada. The company is run by Ross Beaty. He's known for turning small companies into billion-dollar enterprises. The company is ramping up production and is cash flow positive.
Ram Power has operations in California, Nevada, Nicaragua, and Canada. The stock is down 40% this year after management announced major delays at its San Jacinto project in Nicaragua. Now it's trading at a big 50% discount to its book value – and it has a solid balance sheet to fund future drilling plans.
If these stocks can get back to their six-month highs, that's a 50% return. But if governments show interest in geothermal as an alternative to nuclear, these stocks could easily double or triple from here.
Fear index "VIX" rockets 50% in just three days… touches highest level since last July.
Crude oil prices hit two-week low… still up more than 15% since mid-February.
Natural gas giants Chesapeake, EnCana, and Southwestern Energy are up for the week as the rest of the market plummets.
Panicked investors push 10-year Treasurys to three-month high.