How To Play The Nuclear Power Renaissance

Back in the 1950s, when nuclear power became a thing, it was seen as the great hope for mankind, a new source of energy in a world where consumption was increasing rapidly. There was some skepticism initially in the West given that the first functioning nuclear power plant was built in the Soviet Union, but later in that decade and on into the 1960s the nuclear age became a big thing. The association with the Soviets meant that it was more popular on the political Left than the Right, but it was generally seen as a kind of much-needed and almost inevitable progress.

By the time I was a teenager growing up in London in the 1970s, however, there was a badge, or button as the Americans say, that was popular among those whose politics tended towards the Left. It was a sunburst-type design in yellow, red, and orange with the words "Nuclear power? No thanks!" It was worn with pride and, while small and unobtrusive, was instantly recognizable as an identifier of someone with a left-wing mindset. Looking back, the funny thing is that the Left's opposition to nuclear power back then was in part because of their support for the coal industry, or at least coal miners. Coal was and still is the dirtiest energy source, but that was of less concern than the fact that miners and their unions were under attack from the political Right, the same group that now talks about retaining miners' jobs and often attacks alternative energy sources.

I mention this not to ridicule anybody or any group, but simply to demonstrate how conventional wisdom around energy sources changes over time. Some things, like coal, have been surpassed and look destined to fade and die, but the popularity and political perception of most other energy sources ebbs and flows. There is a good case to be made that given the current political debate around energy, nuclear power is about to come back into favor in America as it is just about the only politically neutral option.

The American Left is now firmly opposed to fossil fuels and the Right, or at least Donald Trump, the Right's effective leader, seems to have a thing about wind turbines and other renewable energy sources. If, as recent history suggests is likely, Congress is pretty evenly balanced after the next election, any investment in energy will need some degree of bipartisan agreement, and the extreme positions staked out by both sides make that difficult to achieve. Both sides distrust nuclear power somewhat, but neither hates it with the vehemence they have for their pet peeves, so it may well attract some investment in the coming years as energy consumption continues to grow.

It is usually a good idea to invest where government subsidies are targeted, so how can investors play that?

The obvious first place to look is among uranium miners, but it is hard to pick a winner in that space. Uranium prices have surged this year and are at their highest levels since 2007, but that is part of the problem. The uranium chart below suggests that current price levels are unlikely to be maintained for long, and many uranium miners are struggling to make money, even at these levels. It looks like uranium is, believe it or not, an oversupplied, overly competitive market so I would look elsewhere for investments in renewed interest in nuclear power.

My pick would be BWX Technologies (BWXT). They are a manufacturer and supplier of components for all things nuclear. That includes military uses, which gives BWX two big advantages as an investment. First, military work gives a solid base of business that is resistant to economic conditions. And second, it means that the company is used to navigating the complex world of government contracts and subsidies. Should the commercial nuclear power industry start to attract government funds as anticipated, that would give BWX a big edge over some other potential suppliers.

In some ways, BWX is not something that I would typically invest in. It is at, or very close to its all-time high for one thing, and I typically look for things that are about to pop, not ones that already have. However, in this case, the move to the highs has not been based on speculation and assumptions as such moves often are. Rather, it is based on real and quite rapid growth in business, growth that is not to with novelty value either, given that BWX started life as The Babcock and Wilcox Company in 1867.

As much as I believe that nuclear power is about to see a resurgence in both interest and investment, it is not an industry that offers many obvious investments. The miners are mostly debt-ridden and unprofitable and component manufacturers and plant builders are often diversified multinational companies where even a big increase in the nuclear component of their business will barely move the needle overall. BWX, though, is the exception. It is focused on various areas of nuclear business, is ideally positioned to benefit from government promotion of nuclear power, and is in the midst of a strong period of growth. All of that makes it a good pick for investors looking to diversify their energy-related portfolio beyond the politically controversial usual suspects.