2 Green Flags And 2 Red Flags For Nuclear Stocks After Th…
2 green flags
Electricity demand is the primary reason for favoring nuclear power stocks as investments. As noted above, electricity demand in the United States is expected to rise 60% between 2025 and 2045. The key to understanding that figure, however, is that demand rose by only 10% in the previous 20-year period. This is a step change in demand, and renewable energy sources solar and wind simply won’t be able to meet it all because they are intermittent. Nuclear is always on baseload power.
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NASDAQ: CEG
Constellation Energy
Premium Feature
Moneyball Superscore
80/100
Today’s Change
(0.63%) $1.65
Current Price
$263.27
Key Data Points
Market Cap
$93BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$260.43 – $266.38
52wk Range
$228.63 – $412.70
Volume
8.6K
Avg Vol
2.9M
Gross Margin
17.37%
Dividend Yield
0.63%
A significant portion of the expected demand is coming from new technologies, such as electric cars and artificial intelligence. There are early signs of demand for nuclear power, as companies Constellation Energy (CEG +0.63%) ink deals with AI companies to reopen shuttered nuclear power plants or keep ones slated for closure open. That said, there are currently 438 operable reactors in the world, with 417 actually operating, according to nuclear fuel supplier Cameco (CCJ -0.06%).
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NYSE: CCJ
Cameco
Today’s Change
(-0.06%) $-0.05
Current Price
$88.07
Key Data Points
Market Cap
$38BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$87.79 – $89.32
52wk Range
$77.70 – $135.24
Volume
49.9K
Avg Vol
3.2M
Gross Margin
25.62%
Dividend Yield
0.20%
So there are only a limited number of opportunities for growth within the existing nuclear power fleet. The big opportunity, and the second green flag, is new construction. There are currently 77 reactors under construction, most of which are in Asia. But companies Oklo (OKLO -0.65%) and NuScale Power (SMR -0.59%) are looking to push nuclear technology to new levels, with small modular nuclear reactors (SMRs). And government support for SMRs and nuclear power, more broadly, could help initiate a new building boom.
2 red flags
As with any new technology, however, investors need to watch the cash. For example, Oklo and NuScale are both money-losing start-ups. The idea of SMRs is exciting, but much more work remains before they become a significant factor in the industry. And while these two stocks rose dramatically on news that the U.S. government was providing funding to nuclear start-ups, they each fell back to earth when it became clear that neither company was on the verge of profitability.
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NYSE: OKLO
Oklo
Premium Feature
Moneyball Superscore
60/100
Today’s Change
(-0.65%) $-0.25
Current Price
$38.04
Key Data Points
Market Cap
$7.1BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$37.54 – $39.12
52wk Range
$34.38 – $193.84
Volume
144K
Avg Vol
9.8M
Gross Margin
-2347.11%
That’s really two red flags in one example, since new technology and funding are both issues that need monitoring. However, funding isn’t just an issue for start-ups. Building a large-scale nuclear power plant is an expensive endeavor (it is also time-consuming and difficult, but put that aside for now). So money is a very big problem for any company that wants to build out its nuclear power fleet. This is part of the reason why NextEra is buying Dominion. The combined company will not only be number two in U.S. nuclear but also the largest publicly traded utility in the United States and the world. That is ly to provide it with advantaged access to capital markets.
That said, investors are always making trade-offs between risk and reward. And something that investors need to watch carefully, making it red flag number two, is valuations. Money-losing start-ups are notoriously difficult to value, but Constellation Energy, even after a sell-off, has a price-to-earnings ratio of 25x. The average utility’s P/E is roughly 19x. Nuclear fuel supplier Cameco has a P/E of 157x, but it operates a commodity-driven business, which can lead to outlandish valuation figures at times. NextEra’s P/E, notably, is roughly 17x, making it look relatively cheap, but it is far from a pure-play in the nuclear power space.
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NYSE: NEE
NextEra Energy
Premium Feature
Moneyball Superscore
80/100
Today’s Change
(0.61%) $0.46
Current Price
$76.08
Key Data Points
Market Cap
$159BMarket cap calculated using publicly traded s outstanding only. Does not include unlisted, private, or dual-class non-traded s. Implied market cap may vary.
Day’s Range
$75.38 – $76.28
52wk Range
$75.12 – $98.75
Volume
20.7K
Avg Vol
11.1M
Gross Margin
35.80%
Dividend Yield
3.20%
Even a good business can be a bad investment if you pay too much for it. And mercurial investors have proven that moods can swing quickly in the nuclear power sector. You need to tread with caution and make sure you are comfortable with what you are paying to own a nuclear power stock.
Huge opportunities and huge risks
Nuclear power has a lot going for it, but there are always risks that you have to consider when buying a stock. Right now, growing electricity demand and nuclear power plant construction are two green flags to watch. But red flags funding for hugely expensive reactors and new technology development, as well as sector valuations, need to be watched as well, as they may temper your enthusiasm for a particular stock.
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About the Author
Reuben Gregg Brewer is a contributing Motley Fool stock market analyst covering energy, utilities, REITs, and consumer staples. He is the former director of research at Value Line Publishing, where he rose from mutual fund analyst to equity analyst before leading all research operations. Reuben holds a bachelor’s degree in psychology from SUNY Purchase, a master’s in social work from Columbia University, and an MBA from Regis University. He has been featured as a financial expert on CNBC and in the Financial Times, Barron’s, and InvestmentNews.
Stocks Mentioned
Oklo
NYSE: OKLO
$38.04
(-0.65%)-$0.25
Motley Fool Stock Advisor’s Latest Pick
—% Avg Return
Cameco
NYSE: CCJ
$88.07
(-0.06%)-$0.05
NextEra Energy
NYSE: NEE
$76.08
(+0.61%)+$0.46
Dominion Energy
NYSE: D
$60.68
(+0.46%)+$0.28
Constellation Energy
NASDAQ: CEG
$263.27
(+0.63%)+$1.65
NuScale Power
NYSE: SMR
$8.42
(-0.59%)-$0.05
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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