The (Good) Nuclear Option

Today, I want to talk about harnessing the power of nuclear energy. Historically, that has been a controversial topic thanks to three big stories over the past 50 years.

Those would be Three Mile Island, or TMI, the Pennsylvania power plant that malfunctioned on March 28, 1979…

Chernobyl, the Ukrainian site that exploded on April 26, 1986…

And the Fukushima Daiichi Nuclear Power Plant in Japan that collapsed on March 11, 2011.

Nuclear energy critics are quick to cite all three, but there are a few facts to point out about each:

1. TMI was only a partial meltdown and, despite the total panic it elicited, nobody was actually hurt. While some radioactive gas was released, the U.S. Department of Energy still reports today that it caused “no injuries, deaths, or direct health effects.”

2. Chernobyl was an abject disaster, but a rather predictable one given the USSR’s political structure. Communism notoriously emphasizes results over quality, leaving the site poorly designed with equally flawed safety tests.

3. What happened at Fukushima was an unpredictable disaster. A 9.0 magnitude earthquake struck at exactly the wrong place to trigger a 130-foot tsunami that overwhelmed the plant’s protective sea walls and flooded its emergency generators.

None of these incidents should be taken lightly. However, neither should the deaths and destruction caused by faulty electric power lines in places like California and Hawaii.

And a majority of Americans now agree. According to Pew Research, 56% of Americans are now in favor of more nuclear power.

Source: Pew Research

And the revitalized reputation of nuclear energy couldn’t come at a better time. That’s because, as I’ve shared on several occasions, the world needs more energy, and it needs it right now.

Big Tech Is Going All In on Nuclear

Nuclear energy has so many positive points compared with the alternatives.

Unlike burning oil or natural gas, for instance, nuclear power doesn’t emit greenhouse gases. And unlike solar and wind production, it’s actually reliable; there’s no waiting for the sun to shine or the breeze to blow.

It also requires less land mass to operate than its fellow alternative energy sources. Not to mention how relatively little uranium is needed to create energy.

I call that a quadruple win, a conclusion more and more people are coming to in recent years.

President Trump is among nuclear energy’s supporters. He signed an executive order on May 23 to expand production and ease regulatory approvals for new reactors… including on federal land. The directive also intends to expand U.S. uranium mining and enrichment efforts.

Stephen Hester wrote about that on Friday. As he put it:

The new executive orders are a game changer for both [small modular reactor] companies and those that are involved in artificial intelligence (“AI”). ChatGPT uses more than 1 billion kilowatt-hours of electricity per year. Global AI energy consumption is estimated at 260 terawatt-hours annually, or enough to power 24 million U.S. homes.

That no doubt made a growing number of Big Tech companies happy. As power demands from AI data centers keep expanding at a rapid clip, they’ve been seeking out nuclear power to fuel their energy needs.

This includes Facebook parent Meta Platforms (META), which just signed a 20-year deal with Constellation Energy (CEG) yesterday – the same provider that Microsoft (MSFT) announced its own contract with last fall. Meta will be utilizing power from an Illinois plant, whereas Microsoft is working on the assumption of a reopened Three Mile Island.

Amazon (AMZN) also decided to invest in small nuclear reactors last fall, as did Alphabet’s (GOOG) Google. The latter, incidentally, signed another such contract just last month, this one to actually build new sites.

Since we’re only at the cusp of the AI revolution and nuclear energy seems to be the go-to choice to power it… I don’t see these deals dwindling anytime soon.

That’s why the nuclear renaissance needs to be on our radar…

There are a few dozen publicly traded nuclear power companies out there right now… a number that might very well rise over the next decade. But out of the current pool, there’s one stock that impresses me most.

The Wide Moat Research Nuclear Energy Player of Choice

Constellation Energy is a dominant and dominating force. It’s the largest owner of non-regulated nuclear plants in the U.S. today.

That’s why big AI players like Meta and Microsoft gravitate toward it. Unfortunately, so do investors.

Constellation is far from an unloved stock, trading at $313.03 per share. That gives it a 34.9 times price-to-earnings (P/E) multiple compared with its normal P/E of 23.4 times.

A better choice pricewise is Duke Energy (DUK), which powers my hometown. Based in Charlotte, North Carolina, it’s one of the largest regulated utility in the U.S. And since it’s targeting net-zero carbon emissions by 2050, it’s been massively investing in oil alternatives.

Including nuclear power.

It already had an operating license at the Oconee Nuclear Station. But it just received approval from the Nuclear Regulatory Commission (“NRC”) in March to extend that out for an additional 20 years.

That’s a long-term commitment, to be sure, and one I expect to be repeated in other nuclear contracts before long.

Duke is trading at $116.73 with a 3.6% dividend yield and a 19.2 times P/E multiple, putting it in fair-value range. But if you like bargains as I do, you’ll wait for a pullback to buy in.

There’s no such need to wait with NextEra Energy (NEE), however. This bellwether electricity utility firm has a geographic concentration in Florida – and a renewed interest in nuclear power.

NextEra Energy is a recommendation within the pages of The Wide Moat Letter. And I’m happy to say readers have already seen an approximate 10% return with the stock in two months.

As I explained in our issue recommending the company, its exposure to nuclear is relatively small at just 8% of its energy mix.

Source: NextEra Energy

But it has plans for expansion…

On its fourth-quarter earnings call in January, NEE reported how it had filed a request with the NRC to restore its operating license at the Duane Arnold nuclear plant in Iowa. The purpose: to develop natural gas generation projects that could be paired with renewable energy and storage.

NextEra shares are trading at $70.95 with a P/E multiple of 20.1 times. Compared with its normal 25.3 times, I’m calling a bargain when I see one.

The company has a strong balance sheet that’s A- rated by S&P. And it should grow 9% next year, then 8% in 2027.

Wide Moat Research believes NEE could generate annual returns of 20% or higher…

It may not be a pureplay nuclear investment. But the company has plans to expand its nuclear base. That, combined with its size, scale, and margin of safety, make it my preferred way to gain exposure to the larger nuclear power trend.

Regards,

Brad Thomas
Editor, Wide Moat Daily