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These Companies Are Making a Fortune Off the Government

By Tom Dyson, publisher, The Palm Beach Letter
Monday, May 3, 2010

Today, we're going on subsidy...
 
When the government gives money to families with few financial resources – like the unemployed or the sick – they call it "welfare." When the government gives financial assistance to businesses, they call it a "subsidy."
 
Earning government subsidies is one of oldest ways of getting rich in business. I wrote about Wilbur Ross last week. Wilbur Ross made a fortune when President Bush subsidized America's steel industry in 2003. Or what about virtual banks like Annaly? They're making billions a year from the government's subsidy of the mortgage market.
 
Today, I'm going to show you the best way in America to make a fortune from government subsidies over the next few years. The story starts with alternative energy...
 
The government thinks America produces too much carbon dioxide. It figures if we used more alternative energy – like solar power, wind power, biomass, and geothermal energy – it would help fix the problem.
 
The alternative energy industry won't grow by itself. Most of its products don't generate profits for businessmen or savings for consumers. So subsidies are the only way the government can make it grow...
 
The government uses a variety of tools to subsidize companies in the alternative energy industry. It sends them cash, it offers them cheap loans, it gives them tax breaks, and it forces utility companies to buy electricity from them, even though it costs more money.
 
Here's the thing: A few subsectors of the alternative energy industry are profitable without government help. Geothermal energy is one of these profitable subsectors. (Hydroelectric power is another.) This week, one contact in the industry told me, at current electricity prices in California, geothermal companies are able to earn more than 20% returns on investment without any government help whatsoever.
 
At the same time, geothermal companies are eligible for the same subsidies available to all alternative energy companies. The moment a new geothermal company starts producing power, for example, the government will reimburse 30% of its construction and "start up" expenses with a tax credit.
 
The government will also guarantee 80% of a geothermal company's loans. This allows geothermal companies to borrow money at 5% interest rates... rates normally reserved for only the strongest borrowers.
 
In other words, geothermal companies are like millionaires collecting unemployment benefit.
 
These enormous subsidies, combined with the geothermal industry's natural ability to generate profits, will result in fortunes for geothermal investors over the next few years.
 
With a market cap of $1.5 billion, Ormat Technologies (ORA) is the largest geothermal company in America. You should begin your research with Ormat.
 
Personally, I'm focusing on the small-cap geothermal stocks, and I've already given readers of my trading service, Penny Trends, the names of my three favorite stocks. Subsidies will have a much larger impact on these tiny companies.
 
Recently, stock prices of these geothermal companies have been weak. I've advised my readers we'll wait for signs of a new uptrend before we invest.
 
Good investing,
 
Tom




Further Reading:

When the government meddles in business, it creates boondoggles of massive proportions. But, as Steve writes, "I'm not going to get worked up over it. I'm going to take advantage of it when opportunity presents itself..."
 
Here are a few classic DailyWealth essays on that theme: Take The Government To The Cleaners, A New Way to Take the Government to the Cleaners, Those Oblivious Fools... How to Make Money Off 'em, A Government Boondoggle that Can Save You Thousands on Your Taxes.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
Gold, in euro terms
Allied Nevada (ANV)... gold mining
Aurizon Mines (AZK)... gold mining
Novagold Resources (NG)... gold mining
Silver Wheaton (SLW)... silver royalties
Westmoreland Coal (WLB)... coal
Baidu (BIDU)... the "Google of China"
PS Biotech & Genome (PBE)... biotech ETF
Nobel Energy (NBL)... oil & gas
ConocoPhillips (COP)... oil & gas
Continental Resources (CLR)... oil & gas
Newfield Exploration (NFX)... oil & gas
EOG Resources (EOG)... oil & gas
Apache (APA)... oil & gas
Schlumberger (SLB)... oil services
Cross Timbers Royalty (CRT)... natural gas
Dorchester Minerals (DMLP)... natural gas
Hugoton Royalty (HGT)... natural gas
Cummings (CMI)... diesel engines
IMAX (IMAX)... 3-D movies
Cisco (CSCO)... network equipment
Home Depot (HD)... home improvement
Walt Disney (DIS)... media & entertainment

NEW LOWS OF NOTE LAST WEEK
 
National Bank of Greece (NBK)... who's contrarian enough to buy this?

In The Daily Crux



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