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.