Six Billion Worthy Reasons to Invest in Nuclear Power Shares in 2025
2024 could potentially mark the revival of nuclear power's popularity in America. Is 2025 the year we commit fully to this transition?
By now, you've likely read the headlines. You're aware of how Microsoft is collaborating with Constellation Energy to revitalize nuclear power at Three Mile Island. You've also heard about Alphabet partnering with Kairos Power to generate power for its AI servers, and how Amazon.com acquired its own nuclear power company, TerraPower.
Given these new nuclear power plants are in the pipeline, there's a need for nuclear fuel. This is where our story begins.
LEU, HALEU...and weapon-grade uranium
In essence, the nuclear fuel supply chain operates as follows: Initially, companies such as Cameco mine natural uranium, containing approximately 0.7% of the U-235 isotope required for nuclear fuel. Then, this raw uranium is enriched to desirable levels, ranging from 3% to 5%. This enriched uranium is known as "low enriched uranium," or LEU.
Some nuclear reactors require even more refinement, reaching around 20%, at which point it becomes "high assay" LEU, or HALEU.
If you continue enriching the uranium to 90% U-235 purity, you end up with "weapons-grade" uranium, ideal for creating a nuclear weapon.
Currently, Russia contributes about 44% to the global production of LEU. Due to geopolitical reasons, the U.S. isn't keen on purchasing from Russia, but we still obtain around 35% from them, primarily because that's where most of the LEU is situated.
However, this situation is about to change in the U.S.
Six U.S. nuclear companies down for uranium enrichment
Recently, the U.S. Department of Energy named six domestic nuclear companies they hope will start or expand their enrichment operations, enabling the U.S. to buy LEU from them:
- American Centrifuge, a subsidiary of Centrus Energy
- General Matter
- Global Laser Enrichment, co-owned by Australia's Silex Systems and Cameco
- Louisiana Energy Services, a subsidiary of U.K.-based Urenco Limited
- Laser Isotope Separation Technologies, backed by Nano Nuclear Energy
- Orano Federal Services, a subsidiary of France's Orano SA
Each of these companies will receive at least $2 million in contracts, with the U.S. intending to spend $3.4 billion on LEU purchases from these companies over the next 10 years.
These contracts build upon previous awards of $2.7 billion for HALEU purchases from four companies: General Matter, Orano, Urenco, and Centrus Energy. Similar contracts will be disbursed over 10 years, with each winner receiving at least a few million dollars.
Given the recent ban on additional imports of enriched uranium from Russia (gradually phased out between now and 2028), the chances of these funds being disbursed appear high.
Which nuclear stock should you buy?
The total value of these U.S. government contracts is $6.1 billion. While no single company is guaranteed to secure all the contracts, on average, it should translate to $1 billion in revenue for each company, or $100 million per year, over 10 years.
The positive aspect is that Cameco, Centrus, and Nano Nuclear Energy are listed on U.S. exchanges, making it relatively easy for individual investors to invest in half of the likely winners.
However, as I've explained in recent columns, I'm not overly enthusiastic about the valuations for two of these companies, Cameco and Nano Nuclear.
This leaves Centrus as the most attractive play on uranium enrichment in the U.S. based in Bethesda, MD, Centrus boasts a rich 25-year history, and it's posted profits in most of these years, according to S&P Global Market Intelligence. With a price-to-earnings (P/E) ratio of only 15.5 times earnings and a healthy cash reserve, Centrus stock appears well-positioned to capitalize on the new U.S. policy to become "independent" in nuclear enrichment. Give it a once-over and see if you concur.
With the U.S. government investing billions in domestic nuclear companies for uranium enrichment, there's an opportunity for these companies to boost their revenue. Centrus Energy, one of the named companies, particularly stands out with its attractive valuation and profit-making history. Investors interested in nuclear stocks may find Centrus an appealing choice to capitalize on the U.S.'s new policy towards nuclear energy independence. Additionally, managing one's finances wisely in this investing landscape could yield significant returns as the nuclear power sector revives in America.
