Investing in Nuclear Power Plant Construction: Consider Shaw

May.26.11 | About: Shaw Group (SHAW)

Perhaps it is too soon following the tragedy in Japan that destroyed so many lives. Japanese authorities still have the nuclear station in Fukushima on high alert. However, shares of nuclear industry players have retreated and, as the infamous capitalist Rothschild once said, there is no better time to buy than when there is blood in the streets. Most agree that while there may be a temporary slowdown in nuclear power plant construction, the industry will likely rebound as regulators and owners incorporate more effective safety measures into existing and future designs.

There is a growing list of nuclear power plants nearing construction stage. Two owners of power plant designs are the direct beneficiaries of the trend - Westinghouse Electric in the U.S. and Areva SA (OTCPK:ARVCF) in France.

Besides having over a dozen new plants in the pipeline for power producers in the United States, Westinghouse’s AP1000 is a favorite for China’s ambitious nuclear power plans. We expect the company’s newest design to be equally well received around the world. The Westinghouse Small Modular Reactor (SMR) is a 200 MWe-class and extends the advances realized in the company’s industry-leading AP1000 reactor design. The SMR design uses passive safety systems and other proven technology to achieve the highest levels of safety, while reducing the number of plant components required.

Unfortunately, Westinghouse is privately held and there appears to be little chance for minority investors to get a taste, so to speak. The nuclear business of the company founded by George Westinghouse was sold in 1999 to British Nuclear Fuels Ltd. in 1999. Seven years later, Toshiba (OTCPK:TOSBF) bought the entire company for $5.4 billion, eventually selling off all but 67% to the Shaw Group (NYSE:SHAW) (20%), Ishikawajima-Harima Heavy Industries Co. Ltd. (3%), and Kazatomprom of Kazakhstan (10%).

A proxy for Westinghouse is its 20% shareholder, the Shaw Group. As an engineering and construction company, Shaw also figures prominently in the market for nuclear power plant construction. We consider Shaw among the smaller mid-cap stocks. Trading at 14.0 times 2011 earnings estimates, it is worth a look even for die hard small-cap investors. Coming off a tough year in 2010, comparisons in the next few quarters should be compelling. There is no dividend to enhance shareholder return, but a beta of 1.20 should give investors in Shaw some comfort that a wait for growth in the coming year will not be a roller coaster ride.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. SHAW is a member of Crystal Equity Research’s The Atomics Index in the Nuclear Group.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.