Possible bullish opportunity in nuclear energy market

Guest contributor Jennifer Gorton from Forex Traders takes a look at the opportunities presented by new nuclear build in the US and assesses which companies are best positioned to take advantage if the often discussed renaissance becomes a reality.

The explosion of the environmentalism movement upon the American landscape over the last ten years has done wonders in awakening the American consciousness to the hard fact that we must take care of our world. Whether one believes in the full arguments of global warming or not, it is clear that steps must be taken to protect the earth from destruction via carbon emissions and unnecessary pollutants. President Barack Obama won over the environmentalism movement when his campaign pledge called for carbon emissions to be cut 80% by 2050. Typically, energy generation has had many negative effects on the environment, which is why nuclear energy is gaining so much traction around the world as a viable source of energy generation. In this report, we will examine the benefits and costs of nuclear power, and examine several key companies that stand to profit from an explosion in the nuclear power market.

In 2009, nuclear power attributed to 15% of the world’s electricity generation. The United States of America is currently the largest producer of nuclear power, representing about 31% of total global nuclear generation. As pressure to adhere to green environmental procedures increases upon countries around the world, many developed nations are continuing to consider nuclear power as a viable alternative energy source. Let’s take a look at several of the key benefits of nuclear power versus other energy sources:

• No greenhouse or acid rain effects
• Easy to transport
• Fuel is inexpensive
• Most concentrated source of energy
• Waste is compact

These key benefits have made nuclear power a very attractive alternative energy source for many countries. However, there are major concerns to further development of nuclear energy, with the main one being proliferation. Some world leaders are concerned what the world may look like if we have innumerable nuclear reactor sites around the world. If this technology fell into the wrong hands, we all know what could happen. Due to the incredible benefits of nuclear power and the fact that many countries, including the U.S., are planning on bolstering nuclear power generation in the next 20 years, has caused many financial analysts to be very bullish on the nuclear power industry. Several companies stand to profit nicely in the long-term as an increasing number of nuclear power plants are built in the U.S. and abroad.

Before we take a look at a few key companies that have positioned themselves to take advantage of this incredible growth and expansion opportunity in the nuclear power market, we must take into account the risks, and possible downside, of the nuclear market. First of all, nuclear power generation is extremely expensive. Although the actual production of energy is cheap, the same cannot be said for the capital costs incurred during plant construction. In fact, a recent Massachusetts Institute of Technology study estimated that the price of a new nuclear power plant, housed with the most advanced for of nuclear reactors, would cost between US$5bn and US$10bn. This very high cost could put pressure on the industry, especially during a time when credit is not readily available. The current economic constraints in the United States and around the world could serve to weigh on the incredible growth prospects in the nuclear power market.

If the market can somehow get past the incredible expense of building nuclear power plants and move forward, there are several companies that have positioned themselves for an increased demand for nuclear energy good and services.

Shaw Group – a leading global provider of engineering, construction, technology, fabrication, remediation and support services for clients in energy, chemicals, environmental, infrastructure and emergency response industries. Shaw is considered a relatively reliable investment, as it is a Fortune 500 company with fiscal year 2009 annual revenues of US$7.3bn. The group is positioning itself for future growth as it has recently locked in a huge nuclear project in Saudi Arabia, and the market is waiting for confirmation of a large deal in India. Shaw has positioned itself to take advantage of the increased demand for the construction of nuclear power plants.

GE – With household name recognition, GE is one of the most recognizable brands in America. Spanning several decades under the able management of Jack Welch, GE was systematically built into one of the richest and robust companies in the world. After a difficult period of several years, GE has shed many of its peripheral businesses and refocused on energy. With its huge capital base, GE should be a top competitor in the development of nuclear energy, especially in the US, where the number of nuclear power plants are expected to increase dramatically in the next 20 years.

Fluor– A Fortune 200 company with revenues of US$22bn in 2009, Fluor builds and maintains many of the world’s most complex nuclear power plants. Due to the expected rise in the number of power plants in America, Fluor should see strong growth over the long-term. Fluor also has a very strong international presence in the nuclear power industry, so it is not completely dependent on immediate developments the United States, which should serve to reassure potential investors. The energy needs of emerging market are expected to explode during the next 20 years as more countries develop high-tech infrastructures, and Fluor will be a major player in these developments. At the end of June, Fluor announced it had won a US$1.3bn mining contract with a copper mine in central Chile. Due to Fluor’s international presence and business dealings in various currencies, it has been suggested that a viable strategy for the company would be to hedge against currency volatility in a Forex account in order to produce steady growth.

Excelon – The largest nuclear operator in the America, Excelon is a utility services holding company that specializes in operating its electric generating facilities, its wholesale energy marketing operations, and its retail supply operations. It is considered to be a strong presence within the nuclear energy production area.

The two major risks to incredible growth in the nuclear power market are high capital costs and proliferation. If these two risks are discounted in the face of the incredible benefits of nuclear power generation, then the nuclear power market should see very strong growth in the next 20 years and investing in companies such as the ones above may be a good investment strategy.