New Enthusiasm for Nuclear Power

Ever since oil hit $100 a barrel, public antipathy toward nuclear power has turned to public enthusiasm. The utility industry was quick to catch the change in wind direction. According to the Nuclear Regulatory Commission there are twenty-three applications for new nuclear power plants now pending before the Commission. A total of thirty-four new units would be built if all these applications are approved.

The change in sentiment has also led to new investor interest in those utilities with nuclear power interests as well as uranium mining companies. Utilities like Entergy Corp. (ETR) and NRG Energy (NRG) have retained value while other utilities like Duke Energy (DUK) have sold off on the rising cost of fuel. Likewise, stocks of mining companies such as Rio Tinto (RTP) have fared well even as the rest of the U.S. equity market has struggled.

For investors who do not find the utility stock or the mining stock appealing, there are other ways to play the resurgence in nuclear energy production. There is a group of companies that provides consulting services to the power industry. For example, GSE Systems, Inc. (GVP) provides simulation and educational solutions and services to the nuclear utility industry as well as the petrochemical industry. GVP is involved with plant monitoring and signal analysis monitoring. GVP reported $31.1 million in sales in the twelve months ending March 2008, and reported a small profit of $845,000. With a forward PE of 81.8 times the stock may seem a bit pricey, but we expect the sheer volume of new business from new nuclear power plants assures double digit growth through the next ten to twelve years.

The same growth driver is behind GP Strategies, Inc. (GPX), which provides customized training solutions for the power, chemical and oil and gas industries among others. The company reported $261.8 million in sales in the last twelve months and $10.5 million in net income. GPX is currently trading at 13.5 times earnings, making it a relatively good buy at the current price. Furthermore, its beta of 0.25 makes it appealing in the current volatile equity market. According to Thomson's First Call, analysts with published estimates are looking for steady growth in GP Strategies. The consensus EPS estimate for 2008 is $0.75 on $285.1 million in sales, followed by $0.87 EPS on $311.5 million in sales in 2009.

A newcomer to the nuclear power industry is Thorium Power Ltd. [THPW]. Thorium has developed three new nuclear fuel designs incorporating the element thorium with uranium as the fuel source.

Thorium is about three times more abundant than uranium and is about as common as lead.

Thorium Power is attempting to commercialize the scientific success with designs and solutions for existing and planned nuclear power reactors. No significant changes are needed to current reactor designs to use Thorium Power's thorium-based technology. The company is small but building momentum. Thorium reported $3.8 million in sales in the March 2008 quarter, but the majority was booked as deferred revenue. The Company is still using cash to support operations. With $6.7 million in cash and equivalents on the balance sheet, Thorium has a good foundation to build on its growth plan in the near-term, but may need a capital infusion.

The case for nuclear power is strong given the continued high price for oil. The question still remains whether sector will provide investors with a light at the end of the current "bear market" tunnel.

Disclosure: No position in stocks mentioned.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein. GPX has been mentioned with generally favorable commentary in the Small Cap SEARCH newsletter published by Crystal Equity Research.

Comments

[Clearlead:]

I don't get this article, Duke owns nukes, so does PGN (which I believe just got state approval to build two more reactors in Florida)...I think the author needs to recognize that ETR, EXC and NRG have merchant generation, not just nukes.

2008 Jul 22 10:59 AM

[stuffonline:]

So where's the insight?

2008 Jul 22 11:03 AM

[CLH:]

Good article. The only replacement for oil and gas is nuclear which was perfected 40 years ago but people in their infinite wisdom decided it was dangerous which is not true.

2008 Jul 22 12:27 PM

[pockyclips ...:]

Crisis management at its finest. Where are the free market masons
when it comes to nuclear? If you count the waste disposal and decommissioning costs on obsolete reactors to be borne by taxpayers, is nuclear any more cost effective than alternatives?

At best, if the industrialized world goes uranium, there may be 30 to 40 years worth of material. It looks to me we're playing the same game of three card monte that we played with big oil. I'd like to see the thorium idea pan out. Three times as much thorium on the planet than uranium. Lot harder to convert to plutonium weapons use, too.

2008 Jul 22 01:16 PM

[Think-About-It:]

I've been looking for the best way to invest in Nuclear for a while and I still have not found it. The ETFs have too many holdings that have significant non-nuclear business. It's been said that Cameco (CCJ) is a decent bell-weather but I'm not convinced.

I'm tempted to just buy Uranium via "U" (Uranium Participation Corp.) on the Toronto exchange but shares of this taxable trust don't seem to track the price close enough and there is friction (trusts expenses etc...).

Does anyone have a favorite way to invest in the growth of Nuclear.

2008 Jul 22 01:54 PM

[thegruntman:]

What do you folks think about USEC?

2008 Jul 23 03:31 AM

[john s. gordon:]

let's hear it for thorium. buy heavy water moderated reactors from AECL.
> jack

2008 Jul 23 08:53 AM

[Clearlead:]

If I were going to buy into the nuclear story....which is a very long term story...I would be looking at the companies that are involved with the engineering and design issues that will be necessary to clear to get approvals from the States and the NRC. I would also look to those companies supplying the reactors.

2008 Jul 23 09:35 AM

[rhj123:]

Seems to be an interesting play in uranium with USU. Put it on your watch list.

2008 Jul 23 12:24 PM

[Contrarian ...:]

The price of uranium took flight in late 2006 and most of 2007. It peaked right at one year ago, near $140. The term “uranimania” was coined by Bob Bishop, if I’m not mistaken. Uranium stocks of all nature went up in meteoric fashion. Fortunes were made by those that came to the party early and were smart enough not to overstay their welcome.

www.contrarianprofits....

2008 Jul 23 06:56 PM

[Stockguy456:]

What are some good pure Nuclear stocks?

2008 Jul 25 09:59 AM

[alpha24seven:]

"Ever since oil hit $100 a barrel, public antipathy toward nuclear power has turned to public enthusiasm."

I stopped right there. That is hyperbolic nonsense. A complete distortion.

2008 Jul 28 02:33 PM

[berberick:]

This is to pocky , i would love to see where you got 30 to 40 years of material . If material was that scarce nukes would not be cost competitive . Spent plut. cannot be made into nukes , you can make them into dirty bombs but dirty bombs are not overly effective weapons . I think before you bash Nuclear you should educate yourself on one the most powerful , clean , energies we have on planet .

2008 Sep 17 10:05 AM

[Derrick Lilly:]

I'm not sure a pure play on nuclear would be that wise since there is so much uncertainty about whether plants will be built or not. But, Cameco (CCJ), mines uranium, and Shaw Group (SGR), would be a decent nuclear infrastructure play.


On Jul 25 09:59 AM Stockguy456 wrote:

> What are some good pure Nuclear stocks?

Jan 27 01:10 PM

[Mad Hedge F...:]

Some 20% of US electricity comes from nuclear power. Half of that is powered by fuel made out of reprocessed Russian nuclear weapons which we bought from the old Soviet Union. I didn’t know that. Talk about pounding swords into plow shares!

Feb 21 08:43 AM