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I was recently reading some posts on Seeking Alpha about Ormat Technologies (NYSE:ORA), in my attempt to get my hands around this one.

Clearly, there are some strong secular trends and catalysts that Ormat plays right into (from the RBC upgrade):

1. Regulatory favorability: Global warming has become a big political issue especially in California — ORA’s geothermal energy provides a meaningful way to increase renewable energy production.
2. Asset building: ORA is continuing to add geothermal assets to its portfolio and will be positioned strongly when the geothermal industry consolidates.
3. JV lookin’ good: Ormat is forming OPC, a joint venture, with an undisclosed financial partner (i.e., hedgie?). Ormat will sell PTCs (production tax credits) to the financial partner through the new entity in return for cash of approximately $100-$120MM.

But I’ve personally never found success picking individual stocks to capitalize on certain themes – irrespective of their operational metrics. That’s like buying Yahoo (NASDAQ:YHOO) to capitalize on Internet advertising and consolidation in the industry (e.g., the Yahoo/Microsoft (NASDAQ:MSFT) tie-up rumors that have been quickly dispelled). Yahoo’s performance has not been indicative of the strong secular trends in Internet advertising. They’ve underperfomed and haven’t proven a good proxy to play the industry. For trends, I prefer to use ETFs as a better way to capture the industry as a whole (assuming the ETF is the accurate proxy).

So, that leaves me scratching my head on Ormat. It’s experiencing margin compression and needs to execute better; but, on the other hand, it appears as if they are putting in the necessary elbow-grease to address the operational stuff and are positioning themselves financially to benefit from the move towards geothermal.

At this point, though, it looks like it could go either way.

Disclosure: Author’s fund is long ORA as of 5/30/07.

ORA 1-yr chart

ORA

Source: Scratching My Head on Ormat Technologies