2 Top Energy Sector Bets

by: Jason Kelly September 03, 2008 | about stocks: CCJ / USU    

Jason Kelly

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Lots of readers have asked if The Kelly Letter is snapping up bargains in the energy sector. I've found that most people divide the sector into two groups: traditional fossil fuels and alternative energy, the latter being considered solar and wind mostly, with occasional mentions of hydrogen and geothermal.

However, the best buy in the energy sector these days has nothing to do with any of that. It's alternative energy, alright, but not the kind that gets placard-carrying crowds excited.

First, a little background. Here's where the world stands:

  • Fossil fuels have peaked or will peak in the next ten years.
  • Demand for energy is rising because the population is growing and more of that population is emerging into a lifestyle of high energy consumption via cars, electronic appliances, and such.
  • Environmental damage from fossil fuel use is reaching a critical and, some say, irreversible stage.
  • We must change to non-fossil energy sources ASAP.

The most promising way to make said change ASAP is by switching from gasoline cars to all electric cars. There are two initial problems with that: one, batteries are still lousy despite major breakthroughs in the past couple of years and promising technologies on the horizon and, two, the electric power grid is powered mostly by coal-burning power plants, and coal is the dirtiest fossil fuel.

So, we should look for investments in either batteries for electric cars or better ways to power the electrical grid for recharging those batteries. Battery companies are mostly private these days, making it hard to invest in them outside of venture capital firms. Besides, each month seems to bring a new technology and it's very hard to know which one will win out. Every inventor scoffs at every other inventor's ideas, yet they're all moving ahead briskly as a group. Selecting one winner from the collective effort is hard, and a lot closer to guessing than investing. I certainly don't have an edge.

That leaves alternative ways to power the electrical power grid, and the best one is nuclear. This confuses people because nuclear is not associated with being good for the environment, but it should be. Nuclear waste is imminently easier to control than carbon waste, mainly because there aren't millions of individual nuclear power plants driving to the grocery store. If nuclear power plants are widely implemented as a way to charge the electrical grid, there will be just hundreds or thousands, depending on various efficiencies, and they will be closely monitored by the government and private firms for safety.

There hasn't been a major nuclear power plant problem since Chernobyl in 1986, and even that killed only 31 people. Almost all nuclear "disasters" end in a handful of people being exposed to radiation, and that's it. Very rarely does anybody die, certainly far fewer than die from, say, car accidents. Finally, going forward the safety record will only improve, and that's from an already reassuring track record.

Nuclear power does not pollute, is very efficient, and would enable us to recharge car batteries with no downside. It would be cheaper than gasoline and far, far better for the environment.

It just so happens that the stocks of major players in the nuclear industry are looking cheap these days. The two I'm examining closely for The Kelly Letter are Cameco (CCJ), the world's largest uranium miner, and USEC (USU), which operates the only uranium enrichment facility in the United States and serves as the U.S. government's executive agent in the nuclear nonproliferation program with Russia.

CCJ vs. USU 1-yr chart:

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This article has 21 comments:

  •  
    Sep 03 02:27 PM
    "...even that killed only 31 people. Almost all nuclear "disasters" end in a handful of people being exposed to radiation..."

    Should we include you in the list of volunteers for the next 31 people?
    Reply | Link to Comment
  •  
    Sep 03 03:48 PM
    en.wikipedia.org/wiki/...
    Reply | Link to Comment
  •  
    Sep 03 04:00 PM
    JS. 1-80% of Frances electricity comes from Nuclear plants run by the Army.No deaths.We run anuclear navy-No deaths.New an better technology avoids prior accidents. How about Coal miners death,yearly

    Reply | Link to Comment
  •  
    Sep 03 04:09 PM
    Hmm, came to similar conclusions...

    Interestingly, nuclear tends to be left out of energy sector mutual funds and out of alternative energy funds. It's like a pariah. Course it suffers the same problem as oil, and coal. Uranium is an exhaustible resource, and reprocessing fuel from breeder reactors is... politically sensitive.

    So... How many people are killed falling off roofs installing solar panels?
    Reply | Link to Comment
  •  
    Sep 03 04:51 PM
    Just saw a chart of various sources of energy production here in the US.. It was a 2007 pie-graph and was related to an article on dams. It showed that the US produced about 20 -> 25% of it's energy from nuclear.

    Chernobyl is hardly a reason to avoid nuclear as it was a poorly designed early version power-plant to begin with. As is noted in the prior posts, we do have an effective and safe nuclear capacity.

    jegan ;-)
    Reply | Link to Comment
  •  
    Sep 03 06:20 PM
    Jason---A great post. Nuclear is safe , clean and cheap. Its the only energy source that can compete with oil and gas.

    I own USU. Up 6% today.
    Reply | Link to Comment
  •  
    Sep 03 06:31 PM
    Uranium occurs in the ground as UO2, often dilute in other oxides but sometimes pure. If every bit of it within drill range could be brought up and purified, there would be about 200 cubic miles of it; interestingly, this is about the same as all the oil within drill range, regardless of recoverability. The difference is that with today's commercial technology -- no breeders, no recycling -- a cubic mile of UO2 yields 160,000 times more energy than a cubic mile of oil. That means every bit of it *can* be recovered, for much less energy than it will yield, and that in turn means that even though it is not renewable, we will be using much more of it seven generations hence than we are today. Seven generations after *that*, maybe a little more still.

    When you know this, it is unsurprising that in recent years, driven by a uranium price that briefly topped $3 per barrel-of-oil-equivale... prospectors have been finding uranium at about ten times the rate of use.
    Reply | Link to Comment
  •  
    Sep 04 12:04 AM
    PALADIN ENERGY (PALAF // PDN.TO) BEST GROWTH URANIUM COMPANY FROM DOWN UNDER.URANIUM SECTOR HAS BEEN BLASTED SINCE APRIL '07.WHEN SECTOR TURNS AROUND,PALADIN ENERGY WILL GIVE GREAT RETURNS....
    Reply | Link to Comment
  •  
    Sep 04 12:12 AM
    Electric cars: everything that's bad about cars, but the pollution comes out of a bigger pipe farther away! Gee, what's not to love?
    Reply | Link to Comment
  •  
    Sep 04 09:24 AM
    Electric cars driven by wind, and solar, biomass, natural gas and nukes means less coal burned, which means less carbon. Easier to deal with pollution at the utility level than at the retail level, sorry, there's a strong case that electric cars are good for national security and a big step in the right direction of reducing the impact of transportation in terms of environmental costs.
    Reply | Link to Comment
  •  
    Sep 04 10:03 AM
    I love reading the posts by those opposed to nuclear energy- people you read all the facts already...nuclear is the best bet, hands down, no question. Are there other options? Yes. Are they ready to be implemented on a scale that can contribute SIGNIFICANT amounts of energy into our electric grids? NO! No matter how you slice it, we do not presently have the technology to implement enough solar, wind, hydro-electric or geothermal devices/stations to power our national energy needs. Should all these methods be put into place immediately so less nuclear energy is needed? YES!! We need to use a mix of all of these methods coupled with nuclear energy and transition away from coal and oil powered plants. You read it in the comments above: we have a nuclear Navy (i.e. submarines!)- no accidents; France derives some 80% of it's energy from nuclear energy- no accidents. Chernobyl happened as a result of sub-par engineering and a handful of foolish engineers that pushed a power plant beyond it's capabilities during a systems test and didn't know how to properly fix their mistakes when things starting going south- hence, a meltdown.

    We are concerned about waste- reprocess the spent fuel like France does and store all waste beyond reprocessing's capabilities in cooling pools at the plants (for now). Is nuclear a resource that we may run out of in another century or so? Yes. However, with the reprocessing capabilities and improvements in that field, maybe we have more than 100yrs to be concerned with that aspect and we have at least that long to develop new and improved energy delivery methods. Think about how far we've already come in the last 100yrs... are you going to assume that we won't have improvements just as dramatic in the next 100? Seems pretty logical to me.

    Everyone needs to keep in mind that nuclear power plants are engineered in such a manner today that even if a terrorist was to drop a bomb on a power plant, the chance of having another Chernobyl (unless the bomb itself was a nuke) are VERY slim. The rest of the world is waking up to nuclear energy and building new nuclear power plants at an astounding rate. Before you know it, America will once again find itself playing catch up with those around us- rushing to keep up and spending billions upon billions of dollars to get it done yesterday.

    It takes 10 yrs to build a new nuclear power plant... the time to act is NOW!
    Reply | Link to Comment
  •  
    Sep 04 10:22 AM
    Jimmy Carter our resident "expert" killed nuclear power in the US. Two plants ready to start up, dismantled and sold for scrap.

    I was stationed aboard three nuclear subs for about six years. We never had a problem. I would often go into the upper level of the reactor compartment to study because is was so clean, well lighted and quiet.

    Now we have an energy crisis. And, Jimmy is still shooting his mouth off with trash!
    Reply | Link to Comment
  •  
    Sep 04 10:23 AM
    Why not use natural gas for electricity generation. It is clean burning and abundant (and getting more so). The CO2 would have to be captured and used for other purposes, such as, bringing up residual oil, until conversion to less harmful forms can be achieved. Use the hybrid and electric power technology, now available and being developed, for vehicles. Solar and wind power is being added to vehicles to help maintain charge. This requires less infrastructure change and is available, now.
    Reply | Link to Comment
  •  
    Sep 04 12:35 PM
    Check out France, we laugh at them but they have doing with Nuclear what we only dream of. While we been sitting on our rumps for the last 30 years they been making progress in clean efficient power. But before one invest in nuclear might take a look at how long it takes to get a new system built and on line. In our country with present attitude, we will still be smoking coal in the next 30 years.
    Reply | Link to Comment
  •  
    Sep 04 02:44 PM
    MBBOB, need a better battery first-to replace fossil fuels altogether. Electric cars are good for the millions of people in urban areas. Need CNG for the big rigs/heavy haulers 'til battery technology catches up. NO WAY should it be used for the power grid. Nuclear should be the main provider, with solar, wind, etc. when mother nature allows. Population and usage going UP, need power options with balls. HIGHLY recommend nuclear for the short-to-midterm 'til 'other' technologies give us more options. Happy investing!
    Reply | Link to Comment
  •  
    Sep 07 12:18 PM
    AS LONG AS WE HAVE A GOVERNMENT THAT DOES NOTHING TO ADDRESS THE ISSUE OF OIL DEPENDENCE YOU CAN COMMENT ALL YOU WANT AND NOTHING IS GOING TO HAPPEN.WHAT A SLAP IN THE FACE IT WAS WHEN CONGRESS WENT ON VACATION INSTEAD OF ACTING ON THIS CRITICAL ISSUE,THANKS TO PELOSI.HOW ABOUT THE WORST PRESIDENT IN HISTORY,JIMMY CARTER,PUTTING HIS NEGATIVE TWO CENTS IN AND GOVERNOR JOHN CORZINE OF NEW JERSEY ,NO DRILLING OFF N.J.I HOPE WHEN ELECTION TIME COMES AMERICANS REMEMBER TO VOTE ALL THESE BUMS OUT,THEY ARE INCAPABLE OF DOING AMERICAS BUSINESS.
    Reply | Link to Comment
  •  
    Sep 09 08:13 AM
    Great post. Nuclear is the best alternative right now.
    Reply | Link to Comment
  •  
    Sep 12 02:31 PM
    It is amazing that no one is mentioning FTE NLR. This where one begins if they want to invest in the nuclear industry.
    Reply | Link to Comment
  •  
    Sep 25 08:09 PM
    "Only" 31 died as a result of Chernobyl.

    Why would anyone listen to one who makes a statement like that? The collateral damage is still going on and it's cost in suffering (and money for those who think that's the best measurement) is too large to ignore.

    Is this article the result of research or self serving cherry picking of facts that the author feels support his position? At best, a twisted point of view.
    Reply | Link to Comment
  •  
    Oct 28 02:08 PM
    Jason, I believe that time will prove you right...but for now, let's keep in mind this quote from Winston Churchill: "Americans can always be counted on to do the right thing, once they have exhausted all other possibilities".

    Reply | Link to Comment
  •  
    Oct 31 11:06 PM
    USU has competition in America from France with its centrifuge coming online late in 2009 or early 2010. The French are in Bonneville County in Idaho and just little bit behind USU in production of their new centrufuge facility. So there will be some competition for there services and the competition will keep the prices down. Additionally, GE has a new system for enrichment with a process using lazer. USU will only keep its reigning production line for 6 months at most. USU had a good idea but it wasn't smart to let the French come here and do the same thing and take our money home.
    Reply | Link to Comment
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