NuScale Power (NYSE:SMR) is an interesting business if you think nuclear power will be a key form of clean energy in the future. There’s only one “minor” problem: the company doesn’t have a working product yet.
If you like the idea of ​​nuclear power, but prefer to own more developed businesses, you may want to consider Caméco (NYSE:CCJ) Or The Southern Company (NYSE: SO). Here’s what you need to know.
NuScale Power: great potential, but not there yet
NuScale Power’s hope is to be able to build small nuclear reactors in a factory at a relatively low cost. These units will be modular and can be joined together in groups of up to 12 to create what would, in effect, be a large nuclear power plant.
The design of small-scale modular reactors should make it easier to install nuclear power plants where they are needed, whether in remote areas or in easily accessible population centers. And their operation should be safer than large nuclear power plants.
This sounds like a near-perfect story. And if NuScale can achieve all of this, it will be a very attractive investment. The problem is that it has yet to build a single small-scale modular nuclear power plant.
All there is here is potential, and it will take good execution to live up to the opportunity seen by management. For more conservative investors, this might be a little too high a risk to take. Fortunately, there are other ways to invest in nuclear power.
Cameco mines for uranium
At the heart of nuclear power is the fuel, which is usually uranium. Cameco is one of the largest producers of uranium minors in the world.
After the meltdown at Japan’s Fukushima nuclear power plant, this was not a good thing, as uranium prices fell into a rut as the world seemed to be moving away from nuclear power.
But it appears that this carbon-free energy source is experiencing something of a renaissance. The price of uranium has increased significantly in recent years.
There are two factors to consider here. First, Cameco’s financial results will benefit from rising commodity prices, assuming the price of uranium does not fall dramatically again. Second, Cameco’s performance depends heavily on uranium prices, although it tends to use long-term contracts.
But it offers investors a way to invest in the nuclear power sector. And it will benefit since new reactors, like the ones NuScale is trying to build, will increase demand for nuclear fuel.
Southern Company has a nuclear foundation
If the idea of ​​owning a new business with no product and/or a mining company exposed to commodity prices is too much risk for you, don’t worry. You can buy Southern Company, which is a pretty boring utility.
At least it’s boring today. Not long ago, she was struggling with a large construction project that wasn’t going very well. But it has now commissioned the Vogtle 3 and Vogtle 4 nuclear power plants in Georgia, entering a new phase of its life.
For investors interested in nuclear power, Southern provides a fairly safe way to gain exposure. While it is true that nuclear power represents only a small portion of Southern’s overall generation portfolio, nuclear power now provides a solid and reliable foundation for the company as it looks toward a cleaner future.
And then there is the dividend, which has been increasing for more than two decades. The dividend yield today is around 3.7%. There are higher-yielding utilities, but the completion of the Vogtle project should allow Southern to accelerate its dividend growth at some point in the next couple of years.
This could make the stock an attractive addition to a growth and income portfolio, not to mention for investors who simply want a little exposure to nuclear power without taking on the risks of a company like NuScale.
You don’t have to get started
The takeaway here is that NuScale may have a great idea, but it is still a very high-risk investment because that idea has not yet been brought to fruition. Most investors will probably want to wait until it hits a few other development goals before buying it.
But this does not mean that we should completely avoid the field of nuclear energy. You can buy the uranium mining company Cameco, which will benefit as the number of nuclear power plants increases the demand for nuclear fuel. Or, play it safe and buy a dividend-paying utility like Southern that includes nuclear power (two new plants in this case) in its asset base.
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Ruben Gregg Brewer holds positions in the Southern Company. The Motley Fool recommends Cameco and NuScale Power. The Mad Motley has a disclosure policy.
Forget NuScale Power: 2 Nuclear Power Stocks to Buy Instead was originally published by The Motley Fool
