Profit From Nuclear Energy With These Three Nuclear Experts

Rupert is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Since the Fukushima accident, the outlook for nuclear power has been cloudy. Japan began an extended shutdown of 48 reactors and Germany committed to move away from nuclear, to solar and wind power by the beginning of the next decade. This has given the nuclear industry a grim outlook.

However, according to data from the World Nuclear Fuel Cycle conference held in Singapore back in April, the nuclear industry outlook is not all doom and gloom. Indeed, according to data presented at the conference, new-build nuclear projects are being launched at a speed not seen since the mid 1980's and 60% of the new projects are in Asia.

This strategy is suited to large countries such as China, India, Russia and the U.S. where nuclear projects can be built away from population zones. While nuclear power is generally safe when run properly, when it goes wrong it goes really wrong.

Long-term nuclear energy is more efficient

The long term fundamentals of nuclear power far outweigh the short term costs and it is for these reasons that nuclear energy is being considered. Additionally, there is increasing uncertainty over the cost of fossil fuels, emission regulations are starting to bite and, as of yet, solar and wind power cannot compete on the same level.

In particular, even with the shale gas boom, the US Nuclear Regulatory Commission notes that work is currently underway constructing four reactors at Plant Vogtle in Georgia and Plant Summer in South Carolina. There are license applications for 16 more reactors being processed. Furthermore, the NRC predicts that there will be applications for up to 35 new reactors by 2030 as new emission regulations come into effect.

However, nuclear energy is expensive

The construction of nuclear plants is  lengthy, highly specialized, expensive process and one of the most experienced companies for the job is Fluor (NYSE: FLR). Fluor has received some of the biggest contracts in the U.S. for power plant construction and the company's diverse range of customers mean that the company is a solid play on both the expanding nuclear and oil & gas power sectors. Indeed, Fluor's revenues have rocketed more than 30% over the past three years as the company has reaped the benefits from the US oil boom. Earnings have followed suit, up 37% during the same period.

Earnings are expected to rise to $4.14 per share this year, up from $2.17 in 2012, that’s a gain of 91% and the company's growth won't stop there as another 14% rise in EPS to $4.70 in penciled in for 2014.

Money can be made from decommissioning

One of the biggest problems with nuclear power are clean-up costs, especially if things go wrong. When power plants need to be shut down they call on URS (NYSE: URS) a world leader in decommissioning and hazardous waste disposal. Last year the company was part of a joint-venture that was awarded a 15 year contract to decommission the UK's Sellafield site. As growth goes, URS is no Facebook, the company's earnings have expanded just 12.6% in the past five years and this slow growth rate is set to continue with Earnings Per Share (EPS) growth of 9.7% predicted for the next five years.

That said, as the company's growth is slow, the valuation is low and URS trades at a 50% discount to its peers in the technical engineering sector which trade at an average TTM P/E of 21 compared to URS' ratio of 11.8.

Both URS and Fluor offer diversification and are not limited to their nuclear activities, giving investors a degree of diversification.

For a pure play on the sector, Cameco (NYSE: CCJ) could be a good bet.

The pure play

Cameco is a miner and refiner of uranium, provider on nuclear consultation services and, through its 32% interest in Bruce Power L.P. generator and seller of nuclear power. Growth is slow as revenues have hardly moved in the past four years and margins have fallen but the company has a good hold on the niche uranium sector. Cash generation is strong and the company has reported positive cash inflows for the last three years, net debt is also low, coming in at only 20% of equity.

There is no denying that Cameco's lack of diversification makes the company high risk but it also means the company is most attractive when it comes to benefitting from the shift to nuclear power during the next few years.

Foolish summary

The outlook for nuclear energy is mixed but the rising demand for cheap, clean energy around the world will lead to increasing use on nuclear energy and these three companies above are set to benefit. The best choice would have to be Fluor for its diversification. However, if you are pessimistic and believe that nuclear energy will fail and the cleanup will take years, URS could be the company for you.

Record oil and natural gas production is revolutionizing the United States' energy position. Finding the right plays while historic amounts of capital expenditures are flooding the industry will pad your investment nest egg. For this reason, the Motley Fool is offering a comprehensive look at three energy companies set to soar during this transformation in the energy industry. To find out which three companies are spreading their wings, check out the special free report, "3 Stocks for the American Energy Bonanza." Don’t miss out on this timely opportunity; click here to access your report -- it’s absolutely free. 


Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool owns shares of Fluor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus