Published:
May 27, 2008
Market Vectors Global Nuclear ETF (AMEX: NLR,
$35.38) is designed to track the performance
of companies that derive at least half their total revenues from
the nuclear power business. That list includes firms that build
nuclear power plants, mine uranium, and generate electricity in
nuclear plants.
Catalysts: Demand for electricity is surging globally,
with most of that growth coming from fast-growing emerging
markets like China and India. In fact, according to the
Department of Energy, Chinese and Indian power demand is
expected to nearly triple between now and 2030.
These nations (and many others) are choosing to expand their
nuclear power plant capacity to meet some of that demand. China
has been aggressively opening new plants in recent years and has
plans to open dozens more in an effort to triple nuclear's share
of Chinese electricity supply by 2030. And India has plans to
open up as many as 15 plants over the next 20 years; the nation
has been pursuing deals with the U.S. to import more advanced
nuclear power technology. In India, nuclear is expected to jump
from 2.4% of supplied electricity today to more than 8.5% in
2030.
And nuclear continues to grow in the developed world as well.
France, for example, already gets about 80% of its power supply
from nuclear and is building new plants to replace its ageing
fleet. Meanwhile, U.S. utilities are expected to file as many as
34 new permits for plants.
Nuclear offers several key advantages as a fuel. First, while
nuclear plants are expensive to build, ongoing fuel costs are
low. Nuclear plants require only a small amount of uranium to
operate, and the price of uranium is only a small component of
the cost of generating nuclear power. Rising natural gas, oil
and coal prices can push up the price of electricity
significantly, but the same can't be said about uranium.
Secondly, environmental issues have become a major growth
catalyst for nuclear energy. Nuclear plants emit no greenhouse gases, sulphur dioxide, or any other pollutants. Most analysts agree
that building more nuclear plants is one of the only ways
countries can meet future energy needs and reduce emissions of
these pollutants.
The U.S., EU, and many other countries plan to or already have
implemented carbon taxes or cap-and-trade systems to reduce
emissions. Stricter environmental standards worldwide will be a major
driver for growth in coming years.
Competitive Advantages: NLR offers broad diversification
in the nuclear business. Some of the best plays on the industry
are foreign firms such as uranium miner Energy Resources
Australia and nuclear power plant builder Mitsubishi Heavy
Industries. Several of these foreign plays do not have
ADRs
listed on the U.S. exchanges -- this ETF offers access to
securities that would be tough for most investors to buy.
In addition, many smaller uranium mining firms and parts
suppliers can be volatile -- by broadly diversifying its
holdings, NLR offers a low-risk way to play the growth in
nuclear power.
Valuation and Outlook: As more countries
implement laws limiting carbon emissions, my staff and I expect
growth in the nuclear power business to accelerate. Furthermore,
countries are increasingly worried about surging costs for all
sorts of energy-related commodities in recent years; a desire to
reduce dependence on imported commodities and control costs is
also driving more interest in nuclear technology. Already,
contracts to build new plants are being awarded in China, Europe
and the U.S.
The average holding in NLR currently trades with a P/E of around
20. Given the strong growth expected in the industry, that does
not seem excessive. Consider for example that the fund's two
largest holdings are nuclear plant operator British Energy and
uranium miner Cameco Corporation (NYSE: CCJ), accounting for
about 18% of the ETF combined. British Energy trades at around
12 times next year's earnings, roughly in-line with its
long-term expected growth rate. And Cameco trades at 20 times
future earnings expectations and has a long-term projected
growth rate of roughly +20%. Thus, neither firm carries a
flighty valuation.
Bottom line:
NLR offers investors a well-diversified play on the booming
nuclear power industry.
Paul Tracy
Editor
StreetAuthority
Market Advisor
About the Market Advisor
This monthly investment newsletter is
a highly diversified service -- the Market Advisor covers income
investments, undervalued stocks, aggressive growth plays, international
investments, exchange-traded funds (ETFs), and just about everything else in
between. As a result, you're certain to find a variety of investing ideas that
are well suited for your portfolio. (Learn
More)
About Paul Tracy
Paul Tracy co-founded StreetAuthority.com and became the firm's
Chief Investment Strategist in 2001. He also co-founded TopStockAnalysts.com in
2006. Prior to that he spent several years as Managing Editor at a multi-million
dollar financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also responsible
for equity research and managing a team of seasoned professional financial
writers, researchers and market commentators.
Paul's previous experience includes a position at Robert W. Baird & Co.'s
full-service brokerage operations as well as economic research work on a Money
and Banking project funded by the National Bureau of Economic Research. He has
also spent time doing outside consulting and research for the University of
Virginia, has appeared as a guest expert on several prominent financial radio
shows, and has been a featured speaker at various investment conferences across
the U.S.
Paul graduated with a B.S. in Finance and Management from the McIntire School
of Commerce at the University of Virginia.
To learn more about Paul Tracy's premium investing newsletter -- the
Market Advisor -- please visit
this link.
|
