Three Ways Nuclear Energy Can Power Your Portfolio
by Carl Delfeld, Investment U Senior Analyst
Thursday, July 14, 2011: Issue #1556
While America and Europe dither over nuclear power, Asia is going full steam ahead.
According to a report by the International Atomic Energy Agency, 65 percent of nuclear plants, currently under construction, are in Asia, with China and India leading the pack. China, like India, relies on coal for 70 percent of its electricity needs... And both know that the only way to power continued economic growth is through nuclear.
The two countries alone are preparing to build three times as many nuclear power plants in the coming decade as the rest of the world combined. And that means investors should keep their eyes open for ways to invest in this expansion.
Nuclear Energy Fuels Asian Growth
According to the World Nuclear Association, Mainland China has 14 nuclear power reactors in operation, and more than 25 already under construction. Two rival state-owned nuclear power giants - China National Nuclear Corp. and the China Guangdong Nuclear Power Group - dominate the market, but only provide just 2.7 percent of its electricity. But expansion is coming. The country plans to build 10 new nuclear plants each year, going from a current base of 8,600 megawatts to 20,000 by 2013 and 70,000 by 2020. Still, this will account for less than 10 percent of China's planned generation needs in 2020.
India has 17 nuclear plants with about 4,000 megawatts of base capacity and has plans to go to 200,000 in 20 years. The speed of the construction programs in China and India, while raising legitimate safety concerns, has attracted companies around the world eager to get in on the nuclear bonanza.
- France, Russia, Japan, the U.K., Canada and South Korea are actively seeking to play a big part in China and India's ambitious nuclear plans.
- Russia is the latest country to strike a civil nuclear deal with energy-hungry India.
- America is a significant player and Westinghouse Electric is building four nuclear reactors in China.
A Shotgun Approach to Targeting Nuclear Investments
A shotgun approach using ETFs might be the smart way to go. After all, who can be sure what company will win the lion's share of these ultra-competitive bids? Launched in 2007, the Market Vectors Nuclear Energy ETF (NYSE: NLR) is a basket of companies that includes holdings in uranium miners, nuclear generation firms and nuclear plant infrastructure companies, all of whom are targeting Asian growth.
As of June 2011, the annual dividend is $1.06 making the yield 4.87 percent, which is the highest in the space. At the moment, the ETF is down approximately 14 percent on the year, which investors can blame on the Fukushima plant disaster.
Three companies, in the nuclear sector, that you should keep an eye are:
- Reliance Power of India, which trades on the Bombay Stock Exchange and will have a seat at the table of any big bid at home or in the region.
- General Electric (NYSE: GE), which has developed partnerships with key players in all of the most promising Asian emerging markets.
- Korea Electric Power (NYSE: KEP) - better known as Kepco- is a state-controlled utility and is known as a ferocious low-price bidder fully backed by the South Korean government.
The rebirth of nuclear power is a global investment theme that cuts across many sectors and asset classes. But one thing is clear: Asia is the center of the action, and while its leaders recognize that the Fukushima nuclear technology was 30 years old, they realize that they have no real choice if power is to keep pace with economic growth.