How to Invest in Nuclear Energy and Whether You Should
The world is gradually transitioning from fossil fuels to alternative sources of energy. Along with solar, wind, and hydro, there's also an impetus towards nuclear energy. How can you invest in nuclear energy and is it worthwhile to invest in the sector?
The global pivot away from fossil fuels received a booster after President Biden rejoined the Paris Climate Deal, which his predecessor Donald Trump had withdrawn from. There has been a rally of a lifetime in green energy stocks since Biden’s election even though the sector has come off its 2021 highs.
Is nuclear energy as green and clean as it's made out to be?
There have been discussions about whether nuclear energy can be classified as a clean and green source of energy. According to the U.S. Department of Energy, nuclear energy is clean energy. It lists three points to support the thesis.
- Nuclear energy helps protect the air quality.
- The land footprint for nuclear energy is small.
- Nuclear energy generation produces very little waste.
However, some researchers argue against the “green” element in nuclear energy and point to emissions with uranium enrichment and radiation from nuclear plants. The disposal of nuclear waste is another problem area that environmentalists cite to counter the argument for nuclear energy.
How to invest in nuclear energy
Theoretically, you can invest in companies that produce electricity through nuclear power plants and those that supply components for these plants to get exposure to the nuclear energy sector. However, there aren’t a lot of pure-play nuclear energy companies.
Most companies that supply parts for nuclear reactors get only a small portion of their revenues from the nuclear energy sector. Therefore, uranium can be a good proxy to invest in the nuclear energy sector. After all, most of the uranium goes into the nuclear energy sector. Uranium miners' fortunes are closely intertwined with nuclear energy companies.
Some people even see utility companies as a play to invest in nuclear energy. However, I would argue against classifying utility companies in that category. While utility companies buy nuclear energy, they aren't a play on the nuclear energy sector.
To sum it up, there are three main ways through which you can invest in nuclear energy. These include
- Pure play nuclear companies or those that get a major portion of revenues from nuclear energy
- Uranium mining companies
- Uranium ETFs
Nuclear energy stocks
BWX Technologies (BXXT) is a pure-play nuclear energy stock. The company gets most of its revenues from nuclear components and fuels. The company gets most of its revenues from the U.S. government. BWXT stock trades at an NTM PE multiple of 21.0x.
Uranium mining stocks
The U.S. doesn't have a lot of uranium mines and it has to import most of its uranium needs. Energy Fuels Inc. (UUUU), Ur-Energy (URG), and Uranium Energy Corporation (UEC) are among the U.S.-based uranium mining companies.
Most of the uranium mining companies are based in Canada and Australia. Canada-based Cameco Corp. is the largest publicly-traded uranium mining company with a market capitalization of over $6 billion. Denison Mines is another uranium mining stock that you can look at.
Nuclear energy ETFs
These are the prominent ETFs based on the nuclear energy theme:
- the Global X Uranium ETF (URA)
- the North Shore Global Uranium Mining ETF (URNM)
- the VanEck Vectors Uranium+Nuclear Energy ETF (NLR)
Should you invest in nuclear energy?
The world is transitioning away from fossil fuels and nuclear energy will play a key part in that transformation. Also, looking at the positive outlook for the electric vehicle industry, the electricity demand would increase multi-fold over the next decade. If nuclear energy can capture a meaningful piece of the incremental demand, the sector can be a multi-bagger for investors.