Invest in Nuclear Energy With This One Stock
The famous American philosopher George Carlin once remarked about how many people seem to be afflicted with NIMBY syndrome. The acronym – which stands for Not In My BackYard (NIMBY) – is a term which implies that while everyone thinks we ought to move more towards clean energy, nobody wants a nuclear power plant anywhere near their neighborhood. Given that nuclear energy is a zero-emission clean energy source, and given how strongly many people feel about carbon dioxide emissions, you’d think everyone would be rooting for more nuclear power.
When it comes to classifying nuclear energy as “renewable,” this is a matter of debate, primarily because nuclear power reactors use uranium which is non-renewable. (The most commonly agreed upon renewable energy sources are biomass, wind, solar, hydro, and geothermal.) However, if the goal is to build an electricity generation infrastructure to lower carbon emissions, nuclear energy is a viable solution because it has zero emissions. According to the U.S. Energy Information Administration, “nuclear energy was the source of about 20% of U.S. electricity generation in 2017.”
If we include nuclear power as a “renewable energy source,” this means that in 2017, almost 40% of electricity generated in the United States already comes from renewable energy.
Nuclear Power Plants
Nuclear power plants use steam turbines to produce electricity from nuclear fission. According to the Institute for Energy Research, nuclear energy is the lowest-cost method of producing electricity. Sure, there’s nuclear waste generated as a byproduct, but you can’t have everything you want. The French generate more than 70% of their electricity from nuclear energy and look how they turned out. Other countries that produce around 50% of their electricity from nuclear energy include Slovakia, Hungary, and Ukraine, leading one to believe that one positive side effect of nuclear energy are female populations with above-average levels of attractiveness.
Then there’s the U.S., with 98 operating nuclear power reactors in 30 states, operated by 30 different power companies. One of those companies, NextEra Energy, is the world’s largest operator of wind and solar projects, and also happens to be The Biggest Electric Utility Company in the World. NextEra operates three nuclear energy facilities, one of which is the Point Beach Nuclear Plant:
The plant you see in that picture provides 1/6 of all the power consumed by the 5.8 million people that live in Wisconsin. While not often talked about, nuclear generation of electricity coming from the United States represents around 30% of the worldwide total, about twice as much nuclear energy as the next nearest country, France. And according to the World Nuclear Association, government R&D funding for nuclear energy is being revived with the objective of rebuilding US leadership in nuclear technology. (We touched on this in last year’s article on Advanced Nuclear Technology.)
With that said, when we move to looking at an investment thesis, we’re going to go all in on our domestic bias and focus solely on the country where the majority of our readers hail from, ‘Murica.
How to Invest in Nuclear Energy
If suddenly nuclear energy was said to be the way forward for electricity generation, you’d expect investors to start looking for stocks that can give them exposure to nuclear energy. Firstly, there are the utility companies that generate cheap electricity from nuclear power plants. As we mentioned earlier, U.S. nuclear energy sources are spread out among 30 different utility companies that collectively own 98 different reactors. Investing in uranium sounds like a good picks-and-shovels play, but only if you can stomach the risks of mining in Kazakhstan. According to a recent article by Forbes, the largest producer of the uranium on the planet (37% of mined uranium ore) is a Kazakhstan firm called Kazatomprom (KAP) which had an IPO late last year on the London Stock exchange. Finally, there’s a picks and shovels play – the only picks and shovels play in North America – a firm called BWX Technologies (BWXT).
A Nuclear Energy Stock
You may not have heard of BWX Technologies (BWXT) before because they only began trading in 2015 when the company was spun-off out of another energy company called Babcock & Wilcox Enterprises Inc (BW) which went bankrupt in 2000 and seems to have had problems ever since. (Today, BWXT sports a market cap of nearly $5 billion while BW is just barely over $100 million.) The below historical timeline shows how they arrived to where they are today as a result of acquiring several companies following the spinoff.
Today, BWX Technologies claims to be “the only manufacturer of large reactor components in North America,” though at the present time, 75% of their revenues come from being the “sole manufacturer of naval nuclear reactors for U.S. submarines and aircraft carriers.” In addition to powering the spread of freedom in global waters – what they refer to as their Nuclear Operations Group (NOG), and one that constitutes the majority of their revenues today – the company also has two other business segments, one of which is nuclear power.
The company’s aim to diversify their revenue streams so they’re not overly reliant on the U.S. Navy as a key customer becomes apparent when looking at their latest investor deck. In December of 2016, they acquired “GE Hitachi Nuclear Energy Canada” which doubled the size of their Nuclear Power Group (NPG) while giving them some international exposure as well. Just over 85% of the NPG revenues now come from Canada, a segment that has a huge backlog due to a large portfolio of refurbishing projects that extend past 2030.
As you can see, NPG revenues have been experiencing meaningful growth, and if that growth trajectory is maintained, will become a meaningful portion of their revenues within a few years’ time. This segment also expects to see growth with the 2018 acquisition of a medical isotopes business. BWXT is working on building a generator that will produce isotopes that are used globally in more than 30 million medical procedures each year. The isotopes will be generated from natural molybdenum, rather than enriched uranium targets, reducing environmental impact. An article by Word Nuclear news last year talks about the whole thing in greater detail. Pending FDA approvals, the first revenues from this business are expected in Q1 2021.
Finally, we have the Nuclear Services Group (NSG) which makes up a very small chunk of the company’s revenues at the moment but has 500 employees that are still doing some interesting work. We first learned about BWT Technologies while attending last year’s SpaceCom 2018 Expo in Houston where they talked about their Nuclear Thermal Propulsion (NTP) project which belongs to the NSG segment. (Tired of all the acronyms yet?) The NTP project is funded by a three-year $18.8 million contract with NASA that aims to build a rocket engine that can help us get to Mars so we can get the hell out of here before the sun consumes the earth in one million years’ time.
The real potential of the NSG group seems to be all the contracts they have been winning to do management and operations work at nuclear facilities and environmental cleanup work. Look at the size of the contracts they’ve been landing over the past several years. (Included in the below list is the aforementioned NASA nuclear rocket engine contract.)
There aren’t many options to invest in nuclear energy, at least when it comes to U.S. traded stocks, which was the main focus of this article. BWT wasn’t trading at the time of the Fukushima Daiichi nuclear disaster, but you can bet the stock would have reacted to that news in a negative way. Then again, maybe that would also be positive news for their nuclear services group since they would be sent in to clean up the whole mess? There’s no way of telling, but you just need to be aware of the risks associated with stocks that work in industries where the environment can change very quickly, whether that’s for political, regulatory, or natural reasons.
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