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As Nuclear Demand Fades, This (Unloved) Commodity Will Win Big

The tables have turned on uranium.

In the wake of Japan’s ongoing nuclear crisis, spot uranium prices plunged almost 30%. Industry giants like Canada’s Cameco Corp (NYSE: CCJ) tanked more than 25% in the span of just a few days. Smaller uranium stocks traded in Toronto have crashed more than 35%.

Nuclear power will survive this travesty, but at this point popular support has disappeared. Public sentiment has grown markedly against nuclear energy, and governments everywhere are slowing large-scale planned projects.

Last year, Germany, which receives 23% of its electric power from nuclear reactors, extended the life of 17 nuclear power plants by 12 years. In the wake of Japan’s crisis, however, Germany’s government decided to shut down seven of the oldest reactors in the country.

Switzerland and the United States are also delaying projects until nuclear regulatory agencies have a chance to revisit safety standards at existing plants.

What’s bad for nuclear power demand will be bullish for distressed fossil fuels like coal and natural gas.

The real renaissance however will happen for alternative sources of clean energy like solar. That’s where investors should focus over the next few months as a confluence of negative global events continues to put pressure on oil prices and world markets.

Buy Solar Stocks

As traders dump nuclear energy stocks and race into other segments of the green energy complex, I expect solar stocks will emerge as big winners.

Solar energy, though unable to replace the significant title already afforded to nuclear power worldwide, will only witness higher bids going forward from those countries concerned about protecting the environment. Germany is the first nation on the list – a bastion of green energy and home to a history of subsidies for cleaner burning sources of power like solar and wind.

In Germany, SMA Solar Technology AG (Frankfurt DAX: S92) ranks as one of the most profitable solar companies in the world. It develops, produces and sells solar inverters and monitoring systems for photovoltaic applications. In fact, it’s the world’s largest producer in this segment and is the only vendor that has a product range with the matching inverter type for any module type and any power class.

SMA Solar stock trades at just 7 times trailing earnings and has witnessed an earnings revival recently. It’s also more than 25% off its 52-week high.

Is Nuclear Energy Down and Out?

For now, nuclear energy is down. But it’s not out (in the long term). It commands a significant 13.4% of total global energy needs, but its appeal is now fading fast. I expect this trend to continue because the full brunt of cancelled power plant projects, especially in the West, is just emerging.

For investors, the big question is whether an opportunity beckons for nuclear energy stocks at this point.

It’s a mistake to assume nuclear is no longer a viable option. China, India, Russia and South Korea are major growth markets for nuclear energy, and it’s unlikely they will abandon their expansion plans altogether.

But in my opinion, it’s too early to delve back into nuclear energy. Solar power is a direct beneficiary of uranium’s current malaise. I expect fund-flows to continue to power this alternative source of energy in the months and years ahead.

Play the solar energy theme right now.

Until next time…

Eric Roseman
Editor, Commodity Trend Alert