All eyes are on Japan’s nuclear energy crisis this week – and with good reason. The explosions at the Fukushima power plant and the threat of a nuclear meltdown are horrifying enough. The fact these events come in the wake of a massive earthquake that killed thousands and left millions without electricity makes the situation even more compelling.
But as with the Gulf of Mexico oil spill, it is important for investors to remember that one disaster cannot – and should not – kill an entire industry.
In fact, the nuclear crisis in Japan is even less of an indictment of nuclear power than the Deepwater Horizon was a condemnation for offshore oil drilling. The gulf spill had obvious villains – BP plc (NYSE: BP), Transocean (NYSE: RIG) and Halliburton (NYSE: HAL), who all pointed fingers at each other about why the blowout preventer didn’t prevent anything. In Japan, the blame lies not with a careless company culture or even the honest errors of a few workers. The blame lies with an 8.9 magnitude earthquake that would be bad news for just about any structure on the planet.
So as the world focuses on the crisis in Japan and how to help the nation in its hour of need, let’s not forget that there is a lot of potential for nuclear energy these days. Expensive oil is a reality. Global warming is a real threat and fossil fuels are a dirty business for the planet. A January report from Exxon Mobil estimated worldwide energy demand will climb 35% by 2030. Nascent alternative energy sources like wind and solar are still problematic without greater efficiency and U.S. power grid improvements, and represent a very small source of domestic energy production.
Nuclear energy is part of the solution for all of these issues. That means now may be a good opportunity for long-term investors to get into some nuclear energy stocks at oversold levels. Let’s take a look:
Scarce worldwide uranium supplies mean Canada’s Cameco (NYSE: CCJ) will always have a valuable product. Cameco is a leader in the exploration and mining of uranium for sale to nuclear power producers worldwide. CCJ stock sold off dramatically this week, down -18% as of this article’s deadline, and is off -25% since January 1. But the company is projected to see earnings per share grow 30% in 2011, and an additional 22% in 2012. If and when the world becomes more reliant on nuclear energy, you can bet Cameco is going to play a starring role. The company had just set a new 52-week high in February after a +80% run for the stock since last summer, so clearly there was momentum behind Cameco before the recent disaster in Japan.
A smaller but domestic uranium provider is the United States Enrichment Company, now known as USEC Inc. (NYSE: USU). The Energy Policy Act of 1992 allowed the sale of enrichment plants to USEC in order to create a company that would provide uranium for nuclear power generation. After its IPO, USEC crashed about -50% in a year – and barring a brief pop in 2007 and a sharp drop following the financial crisis, hasn’t really shown much action since that initial flop. The company is much less established than Cameco and struggled to turn just a small profit in 2010. But 2010 also brought a big $200 million investment from Toshiba (PINK: TOSBF) and Babcock & Wilcox (NYSE: BWC) – a sign that nuclear heavyweights have faith in the company. USEC shares are off about -31% year-to-date, but gained over 50% across 2010 – four times the broader market. This is an aggressive buy, but one that could pay off big in the long-term if nuclear power becomes more widespread.
Babcock & Wilcox
Speaking of Babcock & Wilcox (NYSE: BWC), this power generation and nuclear components stock was part of a massive spinoff and restructuring of McDermott International (NYSE: MDR) about two years ago and has been on the upswing ever since. Shares are up about 55% since the BWC public offering in July 2010 – and were regularly hitting new 52-week highs as recently as two weeks ago. The nuclear company is too young to analyze trends in the financials, but the strong momentum before the Japanese earthquake and tsunami indicated that Babcock & Wilcox had a lot going for it before the recent nuclear crisis. Perhaps this is an opportunity to buy before that march upwards resumes.
Beyond Babcock & Wilcox, there are a host of much larger conglomerates that deal in nuclear power among many other things. General Electric (NYSE: GE) and its nuclear services business is one of them. The company is a partner with Japan’s Hitachi (NYSE: HIT) on many nuclear projects. This nuke potential is just one reason to like General Electric stock right now. In the fourth quarter of 2010, GE posted an impressive 51% rise in profit and its highest level of new orders since 2007. The company grew full-year EPS by 11% in 2010, is forecast to see 14% this year and another 17% in 2012. Nuke operations are just one reason to take a shine to this conglomerate – and the 2.7% dividend is the icing on the cake.
Construction giant Fluor (NYSE: FLR) has received some of the biggest power plant contracts in the U.S., including work on nuclear power facilities. Coupled with its experience building refineries and offering field services for oil and natural gas companies, this stock has diverse exposure to the energy sector and could benefit both from expensive crude oil and from a nuclear push in the years to come. As oil companies look to tap new finds Fluor could see big business – with earnings for 2011 projected to jump about 66% over EPS for 2010. And after that mammoth leap, another 29% is projected for 2012 according to early estimates. With shares up 50% since last summer and outperformance of the S&P 500 since January 1, Fluor may be a great investment to play the prospect of a nuclear energy boom. It seems insulated from volatility in the short term, and has the potential to tap into big construction contracts down the road if and when they materialize.
Jeff Reeves is editor of InvestorPlace.com. As of this writing, he did not own a position in any of the stocks or funds named here. Follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook.