Why Nuclear Energy Stocks Will Soar in 2015

You don’t have to be a rocket scientist to have seen some upward trends in the nuclear industry lately.

There are several key indicators that point in a bullish direction on nuclear stocks, and all are worth examining before adding any uranium-themed investments to your portfolio.

No doubt the global nuclear energy market is growing. So-called “green” alternatives like wind and solar haven’t made much of a dent in the world’s energy bourses, and that’s where nuclear enters the picture.

According to Statista.com, the value of the global nuclear energy market stands at $133 billion right now but is expected to grow to $300 billion in 2015.

Additionally, the worldwide radiation management market is worth $69 billion right now and will grow to $267 billion by 2030. Construction and services show similar growth trends (expected to hit $53 billion and $22 billion in value over the next 16 years).

But in the past few years, growth has been muted by another high-profile industry event: the Fukushima nuclear disaster in April 2011 that led Japan to close all 48 of its nuclear power plants.

These plants provided 40% of the nation’s electricity needs, and for a short time, the talk was that Japan could make do with non-nuclear fuels to provide energy for the highly populated country — a move other countries (like Germany, Italy, and Sweden) said they would emulate.

That tamped down nuclear stocks, as investors took to the sidelines to see how alternative energy solutions would pan out for nuclear-shy nations. But that scenario is changing, too.

“Nuclear power has been in use for over 50 years,” notes the Emirates Center for Strategic Studies and Research, which published a recent report on the nuclear industry. “Nevertheless, the majority of the world’s nuclear power plants are concentrated in industrialized countries with large economies.”

Several new countries are now considering using nuclear energy, the report adds. “The challenges of maintaining nuclear safety have yet again become the focus of arguments against nuclear power among its opponents. These arguments are not new, having been used after the nuclear incidents at Three Mile Island in the USA and Chernobyl in Ukraine.”

Boosting Nuclear Stocks

The move toward alternatives lost steam, and now nuclear is once again at the top of the list for energy options for a burgeoning number of countries — Japan among them.

Consider these recent developments in the nuclear sector, all of which should add to demand for uranium and boost nuclear stocks:

• Japan has reopened many of its nuclear power plants after demand for alternatives and fossil fuel-based energy sources weakened.
• The U.S. has announced plans to roll out 13 new nuclear power plants.
• The U.K., France, and Canada have also announced plans to beef up their nuclear energy industries.

With renewed interest in nuclear energy, the stocks to watch right now have a uranium bent. One of the earth’s most valuable resources, uranium is the path to profits for investors in one key way: 435 nuclear power plants across the globe rely on uranium to fuel energy development.

All of those plants use about 86,000 tons of uranium annually, but the uranium industry doesn’t really produce that much volume on a yearly basis. Actually, it produces about 75,000 tons of uranium each year.

That’s manna from heaven for uranium stocks and funds, as the price for valuable uranium goes up as demand spikes. Uranium prices are up by 28% so far in 2014 and heading higher as they outpace all five energy benchmarks in the Bloomberg Commodity Index.

“There are a few key factors that are making traders believe that prices should be going up, this includes the good news of Japanese reactor restarts,” said Jonathan Hinze, a senior vice president at Roswell, GA-based Ux. “Expectations that demand will grow even stronger due to China” should also drive uranium prices upward.

Further pushing uranium prices upward are “shovel in the ground” projects for 70 new nuclear power plants coming on line globally in the next two or three years. Some analysts predict uranium prices will rising from $40 today to $70 in 2015.

Which companies offer the best opportunities for atomic energy-minded investors?

For starters, look to Uranium Participation Corp (TSX: U), which owns a stockpile of several million pounds of uranium. UPC’s performance is strictly tied to the ebb and flow of uranium prices, making it a no-frills but potentially ample upside investment given the current trend of uranium prices.

Another option is Cameco (NYSE: CCJ), which is currently trading at $18 per share with an upside, analysts estimate, of $23 per share. Cameco is expected to benefit substantially from Japan’s decision to re-ignite its nuclear power industry.

According to Morningstar, Cameco is the world’s largest publicly traded uranium miner with high growth prospects. “We expect annual output, which was 23.6 million pounds in 2013, to rise roughly 50% through 2019,” the firm says in a recent research note. “Cameco’s new volume will be low cost, with the majority coming from one of the highest-grade deposits in the world.”

Morningstar also notes that uranium consumption is “set to grow at the highest pace in decades as emerging economies turn to nuclear as a carbon-light source of base-load power. Meanwhile, as decades-old existing stockpiles of uranium are whittled down, we expect to see increased pressure on mined supply to meet that growing demand.”

Another option is the Global X Uranium ETF (NYSE: URA), which tracks 23 worldwide uranium mining companies, most of them in Canada. This ETF has a small-cap flavor (aside from a 23% position in Cameco), with a 32% weight toward small-cap energy firms and a 31% weight on uranium microcap firms.

After struggling all year, URA is up 7% in the past three months and shows signs of growing stronger as demand for uranium picks up.

The takeaway? Adding nuclear power to your portfolio is no longer a luxury. With industry growth on the front burner, going nuclear in 2015 — especially with uranium mining companies — is a necessity.

Until next time,

Brian O’Connell for Wealth Daily