Fortune recently reported that the U.S. could need as many as 40 new nuclear plants over the next five years to power all data centers, crypto miners, and cannabis facilities that require electricity. That should be a boon for nuclear energy stocks.
“After being flat for nearly two decades, demand for power in the U.S. is soaring. A recent report by Grid Strategies, a power sector consulting company, estimated that yearly electricity demand is set to grow by 0.9%, while the capacity added to the grid is planned to increase by just 0.5%,” Fortune reported on March 22.
The largest nuclear energy-specific ETF is the VanEck Uranium+Nuclear Energy ETF (NYSEARCA:NLR), which has $153 million in net assets. Founded in August 2007, the surge in energy demand has attracted new investors to the 17-year-old fund.
NLR tracks the performance of the MVIS Global Uranium & Nuclear Energy Index, which is a collection of companies involved in uranium mining, constructing and maintaining nuclear reactors, producing electricity from nuclear sources, and equipment providers for the nuclear power industry.
Here are three nuclear energy stocks to bet on, preferably one from three of these four areas.
Constellation Energy (CEG)
Constellation Energy (NASDAQ:CEG) is the largest holding in NLR, accounting for 8.08% of its net assets.
The company’s website states, “Constellation is the nation’s largest producer of carbon-free energy and the leading competitive retail supplier of power and energy products and services for homes and businesses across the United States.”
Based in Baltimore, it aims to eliminate 100% of its greenhouse gas emissions by 2040, utilizing various forms of clean energy production, including America’s largest fleet of carbon-free nuclear power plants.
The company’s nuclear fleet has production contracts with 100% certainty into 2029, including fuel cycle contracts into the 2030s. These facilities operate at approximately 95% capacity, reducing carbon dioxide emissions by 251 million metric tons.
Nuclear energy has a much higher capacity factor than any other form of clean energy, including hydroelectric, solar, wind, and thermal. Nuclear facilities also have much longer lifespans, improving the long-term return on investment.
Compared to its competitors, CEG has a much higher nuclear capacity, with 22.1 gigawatts (GWs), than the next five U.S. utilities with nuclear power combined.
Constellation has a 21% market share in the Commercial & Industrial market, 400 basis points higher than NRG Energy (NYSE:NRG), its closest competitor in this competitive market.
Its shares are up more than 66% year-to-date.
Cameco (CCJ)
Cameco (NYSE:CCJ) is the third-largest holding in NLR, accounting for 7.24% of its net assets.
Cameco sells uranium and fuel services products to nuclear utilities in 15 countries, including the U.S. It explores and mines uranium, refines it, and converts it into other materials, such as CANDU fuel for heavy water reactors.
In November 2023, it acquired 49% of a joint venture with Brookfield Asset Management (NYSE:BAM) to acquire 100% of Westinghouse Electric Company, which designs, constructs, and operates nuclear power plants. The joint venture acquired the company for $7.9 billion, including the assumption of debt.
Westinghouse has approximately 50% market share in the nuclear reactor business with facilities in 20 different countries.
In 2024, Cameco expects its share of Westinghouse’s adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) to be $477.5 million at the midpoint of its guidance.
In 2023, Cameco’s revenue was 2.59 billion Canadian dollars ($1.98 billion), 39% higher than a year earlier, with adjusted EBITDA of 831 million Canadian dollars ($612 million), 93% higher than in 2022.
It’s not surprising that its shares have risen 310% over the past five years. Net zero emissions cannot happen without nuclear power.
BWX Technologies (BWXT)
BWX Technologies (NASDAQ:BWXT) is the sixth-largest holding in NLR, accounting for 5.40% of its net assets.
Over more than 60 years, BWX has delivered over 400 nuclear reactors to power nuclear submarines and 315 steam generators to nuclear power plants while also operating 12 nuclear facilities for the U.S. Department of Energy.
The company’s business is divided into two reportable segments: Government Operations and Commercial Operations. In 2023, Government Operations accounted for 81% of its $2.50 billion in revenue, 12% higher than in 2022. Its Government Operations generated 91% of its $393.3 million operating income in terms of operating profits.
“Looking ahead, we expect the momentum from 2023 to carry into 2024 and more than offset the anticipated lull in aircraft carrier propulsion systems production, as other elements of our nuclear portfolio gather strength,” CEO Rex D. Geveden stated in its Q4 2023 press release.
As a result, it expects to earn $3.13 a share at the midpoint of its 2024 guidance. Its stock isn’t cheap at 31.9x those earnings.
Of the eight analysts who cover its stock, five rate it a Buy. Their target price is $109.50, about 10% higher than where it’s currently trading.
With its Commercial Operations expected to grow faster than its Government Operations in 2024, it should become more balanced in the years ahead.
That’s excellent news if you’re a long-time shareholder.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
