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OTTAWA (GlobeinvestorGOLD) - There was a time in the not-too-distant past when companies associated with nuclear power ruled as the sultans of sin.
Armaments have always been a no-no with socially responsible investors, and gambling and tobacco have generally ranked high on the V for Verboten list. But for a period starting in the late 1970s, you couldn't get more bad ass than nuclear power. How times change. Given the scarcity of oil and the ever-rising demand for electricity, there has been a lot of talk lately about the nuclear industry making a comeback.
China, hungry for power to sustain its expanding economy, is expected to have about 30 nuclear power plants coming on line by 2020. Twenty-six years after the accident at a reactor in Harrisburg, Pa., the United States is talking about once again building new nuclear plants. Here in Canada, plans are afoot to restart a pair of idled nuclear reactors at the Bruce power-generating station in Ontario and refurbish two others. No nukes? What a quaint reminder of simpler days, when oil was close to $15 (U.S.) a gallon.
Investors have already started to buy into this mode of thinking and the evidence is in the rise in the share price of Cameco Corp., which calls itself the world's largest low-cost uranium producer. Shares of Saskatoon-based Cameco are up about 63 per cent in the past year, and that's after a bout of volatility in October took the price down to about $56 from almost $66. How much more power could there be in Cameco shares?
Maybe not all that much for the time being, even though the consensus of 12 analysts tracked by GlobeinvestorGold is that the stock is a "buy" and CIBC World Markets recently raised its 12- to 18-month price target for the stock to $68 from $64. The real issue is where oil prices are headed. If they tail off from the $60 range of late October, then investor interest will wander from the entire commodities sector, including oil, uranium and so on. In fact, Cameco and the S&P/TSX capped energy index have had similar ups and downs in the past year - if you don't like the immediate prospects for oil, then you don't like Cameco, either.
Longer-term, Cameco's attractiveness comes down in large part to the question of whether you buy into the forecasts that rising demand and growing scarcity will drive the price of oil to $100 or more. If oil gets anywhere near that high, expect nuclear power to get serious consideration from people in the electrical-generating sector.
Commodity investing is always a volatile endeavour, but Cameco has a couple of things going for it that may take the edge off. For one thing, it pays a tiny dividend of 24 cents a share, which yields a little less than 0.4 per cent at a share price in the $56 range. More importantly, Cameco is less volatile than many other commodity stocks, in part because its earnings are not as tied to the level of economic activity.
A less direct but gentler approach to capitalizing on the potential for a nuclear comeback would be to look at TransCanada Corp., which is best known as a pipeline utility but is also active in electrical-power generation. TransCanada is the leader of a consortium that will invest $4.25 billion in the Bruce power plant and could benefit if more nuclear reactors were built in the United States. TransCanada chief executive Hal Kivsle predicted that more U.S. nuclear power projects will come forward in the years ahead, but his broad take on nuclear power was interesting as well: "We do see the potential for a significant nuclear rebirth in North America."
No nukes? That's so last century. In the oil-starved world to come, the nuclear option will look too good to pass up. If it's a sin to capitalize on this as an investor, so be it.
Rob Carrick has been writing about personal finance, business and economics for more than 12 years.