In the aftermath of the devastating earthquake and tsunami in Northern Japan, the uncertainty about the nuclear crisis in the country continues to grip the Asia Pacific region, as well as the rest of the world. Every morning, conflicting reports surface out of Japan, with some officials reporting that the damaged nuclear reactors are “under control”, only to be rebutted by other reports that radiation is leaking out of the stricken Fukushima reactor at alarming rates. The human toll has yet to be fully determined, but could ultimately be the worst disaster since Chernobyl in 1986. The toll on the nuclear and uranium industries – both from a financial and public perception perspective – has also been incalculable at this point.
However, since the news regarding the damaged reactors broke and worsened, countries around the world have announced delays in nuclear plant build-out plans in order to better evaluate public safety. Of these countries, none is more important to the nuclear and uranium industries than China – which, also announced expected delays for its 120 planned reactors. The question now becomes, though, how is China going to fuel its rapidly increasing energy needs if it is moving away from the nuclear option?
We certainly are now witnessing the incredible potential downside posed by the use of nuclear power, but nuclear power is by far the most cost efficient energy source. In fact, it is estimated that uranium (the primary fuel used to run plants) accounts for less than 10% of the cost of generating electricity in a nuclear reactor compared to about 65% for natural gas in a natural gas fired plant, and 20% for coal. With these factors in mind, China may not be able to fully (or even materially) dismiss nuclear power in the coming years as it needs to address its energy consumption. Below, we provide a look at a few stocks to keep on the radar that could be in the mix for China’s growing energy needs.
Cameco Unwavering In Disaster
On Monday morning, the world’s largest uranium producer, Cameco (NYSE: CCJ) held a conference call (.pdf) to address the fall-out from the possible melt-down occurring at the Japanese nuclear reactor. In near defiance, the CEO reaffirmed the company’s guidance for the year while also commenting that it has no plans to slow down its so-called “double-U” strategy – its plan to double its uranium production by 2018.
Of course, China was a hot topic during the call as analysts questioned whether the country would put the breaks on its nuclear build-out plans. Again, CCJ confidently stated that it does not expect China to slow or delay its expansion plans, suggesting that the country has such a massive need for new energy that it will “have to come from somewhere.” However, unfortunately, as the situation in Japan has worsened, China has publicly stated that it is in fact taking another look at its nuclear energy strategy.
The catastrophe and subsequent news out of China has pummeled the stock, down some 20% since last Thursday. With the stock down so sharply, investors and traders want to know whether an opportunity has been presented to pick up the stock at a discount. Looking at its valuation, CCJ certainly doesn’t look expensive using a 1-year forward P/E of 14.8x. Of course, the “E” part of that metric could very well be ratcheted down in short order as analysts adjust for their earnings expectations.
We would also note that the “emotional” side of trading has not run its course, and will likely act as an overhang and keep a lid on the stock. Technically, shares of CCJ look somewhat attractive as they are trading near a $30 support level. For a much more thorough analysis of its technicals, please click here to access our trading report.
Favorable Winds Ahead For A Power Energy Generation Systems?
One of the hottest sectors since the nuclear meltdown has been alternative energy as investors bet that solar, wind, and hydro will become a bigger piece of the pie for the world’s energy sources. While solar stocks have received quite a bit of press lately, wind power related stocks have not seen as much interest.
There is one stock, though, that should be on traders’ radars. A-Power Energy Generation Systems (Nasdaq: APWR) is a China-based company that sells wind turbines and is also involved in the design and manufacturing of photovoltaic cells and solar panels. Business does appear to be picking up for the company as it has secured some rather lucrative deals lately. This includes a $9 million advance payment for a Thailand Biomass Power Plant and a $30.5 million contract to build a power plant in China.
The risk-reward profile for this stock looks quite enticing as well. Currently, analysts are projecting its EPS and revenue to surge 163% and 42% in 2011, but its stock has been clobbered. In fact, APWR is down a whopping 64% since last March, despite its recent upturn. The dumping of the stock put the stock at the lowest levels since early 2009, and has provided a support zone as well. Like CCJ, though, we urge our readers to review our informative trading report on APWR before entering a position. The report will provide analysis on all the key entry and exit levels on the stock.
Future Looking Brighter For SunTech
For years, China has been one of the world’s largest users of solar energy, and that is expected to continue into the foreseeable future. In fact, following the Japan nightmare, it seems plausible that the Chinese government will expand subsidies and incentives for the usage of solar energy. One of the stocks that figures to benefit from a likely increased focus on solar is SunTech Power (NYSE: STP).
The company is a designer and producer of photovoltaic (PV) products which are used in the construction of solar modules. Over the past couple of years, solar stocks have been laggards due to a glut of supply for PV products, as well as declining demand due to reduced subsidies from European governments in particular. As worrisome headlines continue to cross the wires, energy officials throughout Europe have had some of the harshest commentary towards nuclear energy, adding to the speculation that some of the countries will renew their interests in solar energy.
Another attractive attribute is that the prevailing negative sentiment prior to the nuclear crisis kept a lid on the stock as it hovered around an $8-$8.50 support area. With downside risk appearing to be rather limited, it may be a good time to revisit this stock. However, before entering a position, we suggest taking a look at our trading report to understand what the best entry levels are.
China Looking For A Lump Of Coal?
The downside of coal, of course, is that it is dirty and pollutes the environment. The upside is that it is relatively cheap and that there are vast supplies of it. Because of those factors, it is likely that China will look to coal as a significant plug in its energy needs as it reevaluates its nuclear power plans. One of the largest suppliers of coal is Peabody Energy (NYSE: BTU), which has mines in the United States, Venezuela, and importantly – Australia.
Should China increase its demand for coal, it makes logistical sense for the country to look to BTU’s Australia mines for coal reserves. In fact, FBR Capital has bumped up its steam coal demand to 6% from 4% per annum by 2015-2017, offsetting global warming concerns. Unlike the other stocks mentioned in today’s article, shares of BTU have been steadily climbing over the past several months, now closing in on new 52-week highs.