Nuclear energy, a touchstone of civic disharmony in the 1970s that has vanished from public debate in the past two decades, is about to make a stunning reappearance on center stage.
Suddenly transformed by time and forgiveness into a glowing modern alternative to oil and gas, the fossil-free fuel is being foisted on Congress and the utility industry as the best way to solve clean-energy mandates. If greenhouse gases and carbon emissions are the question, proponents say, then nuclear energy is the answer because, well, it produces exactly none of either.
The skeptics in us have to perk up anytime such sweeping claims are made because the nuclear industry has not exactly covered itself in glory over the past two dozen years. If this energy source is so perfect, it's fair to ask, why haven't profit-incented U.S. power executives already flocked to it, as they do with every other technology that saves or makes money?
The reality is that nuclear-powered plants are expensive to build and maintain, and their main competitor, natural gas, is cheap, plentiful and clean enough to be acceptable to all but the environmentalist extreme. Countries where nuclear energy has prospered, such as France, have nowhere near our natural-gas resources. You'd think that would be enough to end the argument.
But there's no stopping the powerful impulse of President Barack Obama's campaign pledge to cut carbon emissions by 80% by 2050. And that means advocates will bend the science, environment and business case as they see fit to make nuclear look golden, even if it results in higher electric bills forever with little real difference in smog control.
Already there are around 100 nuclear plants in America, providing around 20% of our energy needs; look for those numbers to rise as high as 140 and 35% over the next two decades.
Hell on Earth at $2 trillion a year
The House passed the carbon cap-and-trade bill last month, and the Senate will pick up the debate in the fall. The first and most auspicious step was $18 billion in loan guarantees to the nuclear-power industry. So the clock has begun ticking for investors who believe, as I do, that anticipation tempered with patience is a speculator's most important weapon. It's time to determine how much impact the rules will have on nuclear-power companies' profits.I've got a few ideas along those lines, but bear with me for a moment while we go over the environmental issues real fast.
Federal atmospheric scientists appear solid in their defense of the notion that man-made climate change is accelerating in developed nations and could eclipse worst-case scenarios if left unchecked. They say heat waves and droughts will lengthen and grow more intense, harming livestock and crops. Combined with rising oceans, thinning fisheries, more insects and more wildfires, researchers paint a picture of hell on Earth that could cost up to $2 trillion a year in financial losses and infrastructure rebuilding by the next century.
The bill heading to the Senate would require companies to buy a permit for every ton of climate-altering gas, over a limit, they emitted each year. Most of the qualifying companies would be electric utilities or industrial manufacturers that generated their own power. The idea is to punish the profitability of extreme emitters to the extent that they would naturally turn to low-carbon technologies such as nuclear, wind and solar power. The money paid would be circulated back into the economy via government programs to subsidize low-income households as well as heavy manufacturers that would face unfair competition from rivals in countries that lacked carbon-cap restrictions. With electricity demands expected to double by 2,030, tens of billions of dollars probably would change hands.
Going nuclear -- as an investor
Whenever you see a spending pattern so complicated, you know that waste and corruption will be rife. But if we can put our cynicism to rest for a moment, we should look at uranium miners, plant designers and waste processors, and look to buy shares of those companies this summer on the expectation that the Senate bill will pass in the autumn. If you can buy them at March prices, snap them up -- at least for a trade.Start with the plant designers and builders. The companies that could see the most action are Shaw Group (SGR, news, msgs), Fluor (FLR, news, msgs) and a partnership between General Electric (GE, news, msgs) and Hitachi (HIT, news, msgs). Westinghouse, based in Pittsburgh, is also a very large player, but it's now owned by Japanese powerhouse Toshiba (TOSBF, news, msgs).
Shaw doesn't have to wait for more U.S. contracts to see its fortunes improve. It is on the shortlist for a big contract to build nuclear plants in India, and the company could get word of its first one in a few weeks, coincident with a visit to that country by Secretary of State Hillary Clinton. Meanwhile, Fluor has been hired by Toshiba to provide engineering, procurement and construction services to build two nuclear reactors for NRG Energy (NRG, news, msgs) in Bay City, Texas. Try to buy Shaw at $16 to $20 a share and Fluor at $30 to $35.
Then move on to the miners. Uranium prices have been depressed lately because the United States and Russia have been talking about significantly reducing nuclear arms and reached a tentative deal this week. A final agreement could unleash as much as 500,000 tons of stored uranium on the market.
Once those dilutive effects are discounted, the miner to focus on is the biggest: Cameco (CCJ, news, msgs), which owns four major mines in North America and is developing two additional mines, in Canada and Kazakhstan. The company also provides nuclear-fuel refining, conversion and fabrication services, and has a small unit providing commercial nuclear energy through a stake in a Canadian power company. Try to buy Cameco around $13 to $15 a share.
There are many small-cap miners, including Uranium Energy (UEC, news, msgs) and Denison Mines (DNN, news, msgs). If you're going that route, you might as well go all the way and consider superspeculative but legit Uranium One (CA:UUU, news, msgs), which trades on the Toronto Stock Exchange. It has large stakes in two projects in Kazakhstan that analysts believe will be lucrative, though for now they are overshadowed by corruption charges tainting government officials responsible for the lease-awarding process. It also has projects under way or in planning in Wyoming, Texas and South Africa, and has sold a large stake of itself to Tokyo Electric Power and Toshiba. Risk takers could consider purchase around $1.25 to $2 (Canadian) a share later this year.
Utilities probably won't see a huge earnings benefit out of the nuclear-plant build-out, but they'll get a pop anyway because they're the most obvious choice. The biggest and safest name in the group, by a mile, is Exelon (EXC, news, msgs). It would be a buy around $39 to $41 a share later this year. Others to consider are Scana (SCG, news, msgs), a South Carolina utility company that has hired Shaw Group to build two reactors by 2016, and Constellation Energy (CEG, news, msgs) of Baltimore. Look for prices around $27 and $15, respectively.
Another small cap with big potential one day is EnergySolutions (ES, news, msgs), a Utah company that provides nuclear-waste removal, site remediation and decommissioning services. It's profitable and reasonably cheap, and it has several other divisions focused on dealing with toxic waste. It could be bought around $3.50 to $4.50.
It's hard to say definitively how much the new nuclear business will provide to companies because it will be spread out over two decades. But from a purely speculative point of view, you can at least anticipate a power surge for these stocks amid Senate deliberations in the fall by going nuclear over the summer.