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The World Moves Forward With Nuclear Plans
Since the aftermath of the Japanese earthquake and resulting Fukushima nuclear disaster, stocks within the atomic energy sector have falling like a rock. With some analysts calling the sector "dead" money, investors seem to be avoiding it like the plague. However, with the billions of dollars already spent on the source, nuclear energy is not going away anytime soon. As one of the only commodities to be down this year, value investors and contrarians might find the sector an interesting long term buy.
TUTORIAL: Stock Basics
Still Growing
With the Fukushima tragedy still unfolding, many analysts and policy makers are questioning nuclear's role in the world's changing energy landscape. There has been much speculation in the wake of the tragedy that power source should be abandoned. However, with nearly 440 currently operating reactors on the planet today, nuclear is not going anywhere any time soon. One in five U.S. homes is powered by nuclear sources, and European nuclear use shows similar statistics.
Overall, uranium demand has risen from 75 million pounds in 1980 to just over 180 million pounds today. One pound of uranium (U-235) is equal to about 1,400 tons of coal with a fraction of the carbon output. With such energy efficiencies and scale, the power source will continue to be a part of the planets energy mix. Furthermore, nuclear's piece of the energy pie is still growing. Nations throughout Europe, the Middle East and the U.S. all are planning new nuclear energy development. A few days after the Fukushima problems, the U.S. Nuclear Energy Commission gave the final approval for Southern Company (NYSE:SO) to begin construction on the first new reactors on U.S. soil in 30 years.
The key to the nuclear renaissance has been the rising energy demand from emerging markets. China still seems extremely committed to expanding its nuclear power from 2% of its energy mix today, to about 5% by 2020. The nation has plans to add 10 new reactors every year, for the next 10 years. A similar story is emerging in India, where the nation expects to have 20,000 MW of nuclear capacity by 2020 and over 63,000 MW by 2032.
Current Dip Equals Buying Opportunity
With nuclear energy ambitions not going away, the recent fear and resulting dip for stocks in the sector offer an interesting buying opportunity for investors. Higher oil prices, carbon emissions anxiety, and overall increasing demand for nuclear energy bode well for the sector long term. The Market Vectors Nuclear Energy ETF (NYSE:NLR) and iShares S&P Global Nuclear Energy Index (Nasdaq:NUCL) are two easiest ways to add a wide swath of the sector to a portfolio. However, there are other ways to play the sector. Here are a few picks.
Even if the world stops building new reactor capacity, the current operating power plants won't disappear. They will still require uranium fuel to keep running. The Global X Uranium ETF (URA) has taken a beating since the Fukushima catastrophe. The fund tracks 25 different miners, like UR-Energy (NYSE:URG), and is an easy way to play continued need for uranium. The recent sell off is also a way to add the industry leader. Cameco (NYSE:CCJ) mines 16% of the world's supply, and its holdings in Saskatchewan has ore grade concentrations 100-times greater than the industry average.
Suffering equally from the nuclear hangover, and being Japanese companies, both Hitachi (NYSE:HIT) and Toshiba (OTCBB:TOSBF) make deep value picks. Hitachi trades at a P/E of just 9. These two offer some of the most state of art reactor designs, as well as a host of consumer and industrial products. As the built-out continues, look for these two to benefit.
The Bottom Line
In the wake of the Fukushima tragedy, the nuclear energy sector has plummeted. However, the long term picture for the energy source still looks rosy. Investors looking for values among the commodity sector may want to consider adding atomic power to their portfolios. ETFs such as the PowerShares Global Nuclear Energy (NYSE:PKN) or miners like Denison Mines (NYSE:DNN) make ideal selections. (For related reading, also take a look at 4 Clean-Energy Alternatives To Uranium.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
TUTORIAL: Stock Basics
Still Growing
With the Fukushima tragedy still unfolding, many analysts and policy makers are questioning nuclear's role in the world's changing energy landscape. There has been much speculation in the wake of the tragedy that power source should be abandoned. However, with nearly 440 currently operating reactors on the planet today, nuclear is not going anywhere any time soon. One in five U.S. homes is powered by nuclear sources, and European nuclear use shows similar statistics.
Overall, uranium demand has risen from 75 million pounds in 1980 to just over 180 million pounds today. One pound of uranium (U-235) is equal to about 1,400 tons of coal with a fraction of the carbon output. With such energy efficiencies and scale, the power source will continue to be a part of the planets energy mix. Furthermore, nuclear's piece of the energy pie is still growing. Nations throughout Europe, the Middle East and the U.S. all are planning new nuclear energy development. A few days after the Fukushima problems, the U.S. Nuclear Energy Commission gave the final approval for Southern Company (NYSE:SO) to begin construction on the first new reactors on U.S. soil in 30 years.
The key to the nuclear renaissance has been the rising energy demand from emerging markets. China still seems extremely committed to expanding its nuclear power from 2% of its energy mix today, to about 5% by 2020. The nation has plans to add 10 new reactors every year, for the next 10 years. A similar story is emerging in India, where the nation expects to have 20,000 MW of nuclear capacity by 2020 and over 63,000 MW by 2032.
With nuclear energy ambitions not going away, the recent fear and resulting dip for stocks in the sector offer an interesting buying opportunity for investors. Higher oil prices, carbon emissions anxiety, and overall increasing demand for nuclear energy bode well for the sector long term. The Market Vectors Nuclear Energy ETF (NYSE:NLR) and iShares S&P Global Nuclear Energy Index (Nasdaq:NUCL) are two easiest ways to add a wide swath of the sector to a portfolio. However, there are other ways to play the sector. Here are a few picks.
Even if the world stops building new reactor capacity, the current operating power plants won't disappear. They will still require uranium fuel to keep running. The Global X Uranium ETF (URA) has taken a beating since the Fukushima catastrophe. The fund tracks 25 different miners, like UR-Energy (NYSE:URG), and is an easy way to play continued need for uranium. The recent sell off is also a way to add the industry leader. Cameco (NYSE:CCJ) mines 16% of the world's supply, and its holdings in Saskatchewan has ore grade concentrations 100-times greater than the industry average.
Suffering equally from the nuclear hangover, and being Japanese companies, both Hitachi (NYSE:HIT) and Toshiba (OTCBB:TOSBF) make deep value picks. Hitachi trades at a P/E of just 9. These two offer some of the most state of art reactor designs, as well as a host of consumer and industrial products. As the built-out continues, look for these two to benefit.
The Bottom Line
In the wake of the Fukushima tragedy, the nuclear energy sector has plummeted. However, the long term picture for the energy source still looks rosy. Investors looking for values among the commodity sector may want to consider adding atomic power to their portfolios. ETFs such as the PowerShares Global Nuclear Energy (NYSE:PKN) or miners like Denison Mines (NYSE:DNN) make ideal selections. (For related reading, also take a look at 4 Clean-Energy Alternatives To Uranium.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Aaron Levitt
Aaron Levitt is a SABEW investment journalist and analyst living in State College, Pennsylvania. His work appears in several high profile publications in both print and on the web. Aaron is a graduate of The Pennsylvania State University where he studied Economics and International Business and he is an advocate for long-term investing with a global framework. You can follow his picks and pans at @AaronLevitt
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