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Rob Carrick

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The nuclear option

Rob Carrick

Meet the alternative energy source that may just have cooked your breakfast this morning and then powered your dishwasher to clean it all up.

It's nuclear power, the fossil fuel alternative that got its start long before it dawned on anyone that fossil fuels would run out some day. In fact, nuclear power has been providing electricity to homes since 1954, when the world's first plant opened in the Russian city of Obninsk.

Nuclear power is imperfect, but not enough to keep it from playing a role in society's efforts to cut its reliance on dirty, ever more costly fuel sources like oil, natural gas and coal. The World Nuclear Association reports that there are 30 reactors under construction in 12 countries, and it says the International Atomic Energy Agency anticipates at least 60 new plants in the next 15 years. John McCain, the Republican candidate in the coming U.S. president election, has called nuclear power a "clean, safe and efficient source of energy." His Democrat challenger, Barack Obama says it's an option for America's energy needs, though "not a panacea."

Investors have already started to profit from the expected rise of nuclear power, if you judge by what uranium stocks have done in the past few years. In fact, the prospects for nuclear energy are such that an exchange-traded fund focusing on the sector was introduced last year.

Still, the guiding principal in investing in stocks that will benefit from the rise of nuclear energy is that you have to be patient. These are the kind of stocks you may have to hang onto for a while through many ups and downs before they ultimately hit their stride. The five-year share-price performance of the world's top uranium producer, Saskatoon-based Cameco Inc. (CCO-TSX), proves that. Cameco shares were up a total 450 per cent for the five years through the end of June, but they're had a miserable time of it lately as a result of fluctuation in uranium prices and problems in getting its Cigar Lake mine in Saskatchewan opened. Over the past 12 months, a period in which oil prices have soared, Cameco shares are down 26 per cent.

Major Canadian uranium companies besides Cameco include Denison Mines (DML-TSX) and Paladin Energy (PDN-T) , while global names include diversified mining companies like BHP Billiton BHP-NYSE) and Rio Tinto (RTP-NYSE). You can get exposure to multiple uranium producers through a TSX-listed closed-end fund called Middlefield Uranium Focused Energy Fund (UF.UN-TSX).

For a direct investment in uranium, the metal, there's Uranium Participation Corp. (U-TSX), an investment holding company that funnels its assets in two widely followed forms of uranium — uranium oxide concentrate and uranium hexafluoride. "By investing in Uranium Participation Corp., investors are able to effectively invest in uranium in a manner that does not directly include risks associated with investments in companies that explore for, mine and process uranium," the company says on its website at uraniumparticipation.com.

The exchange-traded fund world has been expanding at a rapid rate in the past few years by jumping on every possible investing theme. So it's no surprise that the nuclear sector has been targeted by an ETF called the Van Eck Market Vectors Nuclear Energy ETF (NLR-American Stock Exchange). This fund tracks the DAXglobal Nuclear Energy Index, which is made up of global uranium miners, electrical utilities and industrial firms.

The nuclear energy ETF's performance since it was issued a little less than a year ago is suggestive of what awaits investors who hope to profit from growth in nuclear power. Thes fund peaked at $45 (U.S.) last year and had fallen as low as $28.25 in January before edging back up to the $34 range at mid-year. Patience is required when investing in alternative energy sources, even ones that have been around since the 1950s.

Rob Carrick has been writing about personal finance, business and economics for more than 12 years.

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