Saturday, December 14, 2024

3 Ways to Play the Top Energy Trend

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Editor's Note: According to Barron's, artificial intelligence is "devouring enormous amounts of electricity," making an impending energy crisis seem almost inevitable.

That would be terrible news for the economy and everyday people... but it would be absolutely incredible news for a select group of stocks.

Get more details here.

- James Ogletree, Managing Editor

3 Ways to Play the Top Energy Trend

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

Last month, I wrote about why 2025 could be the "year of energy," citing growing energy demand worldwide and continued advancements in artificial intelligence.

Nuclear energy has especially caught my eye, as it's perhaps the only energy source that's cheap, clean, and reliable.

Nuclear is also a rare topic that Republicans and Democrats agree on. Earlier this year, a key nuclear energy bill passed 88-2 in the Senate and 393-13 in the House of Representatives before being signed into law by President Biden.

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I'm not even sure that you could get 97% of lawmakers to agree that water is wet... yet 97% of them voted in favor of the United States "[advancing] the benefits of nuclear energy."

With that strong of an endorsement, now is a great time to target investments that are involved in the most important material for nuclear energy: uranium.

I've already come across a number of intriguing options. Here are three of my favorites:

1. Sprott Physical Uranium Trust (OTC: SRUUF)

The Sprott Physical Uranium Trust is the only publicly traded physical uranium fund. It owns actual physical yellowcake uranium.

It also trades at a 4% discount to its net asset value, which means you're basically buying uranium for $0.96 on the dollar.

I expect the price of uranium to go higher over time, but even if it doesn't, this fund gives you the potential to make money if the discount gets a little bit tighter. (In fact, the discount has already shrunk from 9% to 4% over the past three months.)

Anytime we can buy assets for a 4% discount, that's certainly something that's going to catch my attention.

The fund is traded over the counter under the ticker SRUUF and is also available on the Toronto Stock Exchange.

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2. Global X Uranium ETF (NYSE: URA)

We actually owned this ETF in The Oxford Income Letter for a short period, but when the market took a big dive, we got stopped out.

The fund gives you exposure to a diversified group of uranium stocks, though there is a decent amount of concentration here - 26% of the portfolio is in Cameco (NYSE: CCJ), which is the biggest uranium miner in North America, and 9% is in the Sprott Physical Uranium Trust.

Half of the assets are Canadian, but you still get plenty of international diversification. The fund also owns Australian, Japanese, South African, British, and even Kazakhstani stocks, among others.

The last thing to mention here is that there's a variable dividend - and it varies very widely. When I first recommended the ETF in The Oxford Income Letter, the previous dividend yield was fairly high. The next dividend was quite low. It really is all over the place.

If you're interested in this play, think of the dividend as a bonus. Any dividend that you receive is great, but that's not the main draw of this ETF. It's not a pure income play − it's a way to own a diversified group of uranium stocks.

3. BWX Technologies (NYSE: BWXT)

BWX Technologies is a really cool company. It supplies nuclear components and fuel to the U.S. government and is the sole manufacturer of small modular reactors for U.S. submarines and aircraft carriers. There's nothing like a government contract for financial stability.

The company also makes radioisotopes that are used in drugs, including a blockbuster drug by Novartis.

BWX pays a very, very small dividend of less than 1%, so it's not a true income play. But as business improves, it could certainly increase its dividend over time.

Overall, BWX is a very stable company. It's been profitable and cash flow positive for at least a decade, and I think it's really in a sweet spot as far as a nuclear play.

Nuclear Energy Is Blasting Off

Moving forward, I'm going to continue to look into companies that are involved in nuclear energy and uranium.

I can't find another industry, energy-related or not, that has such widespread support. Right now, we have seemingly insatiable energy demand (which should grow exponentially), a very limited amount of supply, and a global movement to further embrace nuclear energy both in the public and in government.

I think we're going to look back on nuclear energy 10 years from now and be surprised by just how big it got.

Good investing,

Marc

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