Why NLR Will Continue To Climb In 2014

| About: VanEck Vectors (NLR)


Market Vectors Nuclear Energy ETF is a buy for short, medium, and long-term investors.

Japan plans to restart several nuclear reactors this year, as stated in its new Basic Energy Plan.

Demand for uranium continues to be strong while supply is tightening.

As I indicated in my previous uranium article, I'm bullish on uranium. For reasons I'm about to explain, I see Market Vectors Nuclear Energy ETF (NYSEARCA:NLR) as a buy for short, medium, and long-term investors.

First, a bit of background...

While the crisis in the Ukraine and Air Malaysia may be snagging media headlines, keen investors are banking on a lesser-known, yet potentially more buzz-worthy announcement from the government of Japan. Japanese authorities released the details of their new Basic Energy Plan in late February, and a key portion of it clearly indicates that nuclear energy is to remain an integral source of power for the island nation.

Although Japan's nuclear dependency will be reduced, the government expects reactors that meet stringent new safety standards following the Fukushima disaster in 2011 to be restarted. The plan is expected to be ratified this month, and it's likely going to determine the future of Japan's 48 reactors that have been offline for the past three years.

Analysts at Bloomberg predict that one in every five of Japan's reactors is expected to be turned back on this year. The news has alarmed anti-nuke activists, as the current administration was vague on details regarding the nuclear industry's future share of the energy pie in Japan.

Prior to the 2011 meltdown, nuclear energy supplied approximately 30% of the country's electricity. Japan was the third largest producer of nuclear energy behind the US and France. It's with the hope that in the lessons learned from Fukushima, Japan would re-evaluate its power strategy and work towards adopting safer, renewable energy sources.

However, the Basic Energy Plan didn't make clear how exactly Japan plans to reduce its nuclear power generation over time. What we do know is that the government is prepared to fully abide by safety assessments of the reactors set out by the Nuclear Regulation Authority [NRA].

In other words, if certain plants aren't safe enough to restart, they will be retired. The plan also calls for the establishment of a system for reprocessing all spent nuclear fuel from the plants. There is no word yet on exactly when the first reactors will be back online, but with electricity demand in Japan at its peak in the summer, there's a good chance that we'll see at least some of them restarted before the temperature starts to rise.

If all goes as planned, this means that the global uranium sector as a whole is about to heat up as well.

Uranium Fundamentals Already In Place

The demand for uranium isn't letting up anytime soon, despite the fall in prices over the past few years. Most notably, global use of nuclear energy is still climbing.

According to the World Nuclear Association, 70 new reactors are under construction around the world, and a further 173 are in the planning stages as of January 2014. China alone plans to quadruple its nuclear capacity by 2020.

Secondly, the US-Russia "Megatons to Megawatts" program recently concluded in December, and saw 500 tons of highly-enriched uranium [HEU] recycled from 20,000 Russian nuclear warheads over a 20-year period.

With the program, which supplied 10% of our country's electricity per year, now complete, additional uranium supplies are needed to make up the shortfall.

What's more, similar to the gold industry, large new reserves of uranium are becoming harder to find all around the world, which means that uranium production could soon fall short of demand.

Now that Japan is on the verge of powering back up its reactors, investors are once more showing strong sentiments towards a severely beaten-down sector. So with all these catalysts improving investor confidence in uranium, what's the best way to play the rebound?

Top Uranium Stock To Buy

If you don't want exposure to too much risk on a single uranium stock at this time, the Market Vectors Nuclear Energy ETF is the answer. NLR tracks a basket of companies in the nuclear space, including large utility companies and miners.

Two-thirds of the fund is devoted to large-caps, with the remainder in small-caps. This makes it less volatile than the Global X Uranium ETF (NYSEARCA:URA). What makes NLR an especially attractive play for speculators is that 25% of its portfolio is allocated to Japanese stocks -- its largest percentage.

Before Japan unveiled its energy plan in February, NLR had already shot up 26% from its 52-week low of $39 last April. Since the big news, it's risen even further. Since the restarting of reactors is all but certain in Japan, NLR looks poised to rise over the next few months, and possibly for the rest of the year.

Original article here

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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