The current ideal investment among a selection of three nuclear stocks may come as a surprise to some.
On a recent Wednesday, uranium mining stocks experienced significant increases. Notably, Cameco rose by 8.2% by 2:11 p.m. ET. Denison Mines recorded a 14.7% increase, while the smaller entity, Energy Fuels, outperformed both with a 17% rise.
Investors are showing renewed interest in nuclear energy, bolstered by technology giants like Microsoft, Alphabet, and Amazon.com making significant investments in the sector.
Last month, Microsoft’s agreement with Constellation Energy sparked a surge in nuclear stocks. As part of this agreement, Constellation Energy plans to reopen Unit 1 of its Three Mile Island nuclear power plant to supply Microsoft’s Azure business unit with additional carbon-free power.
The interest in nuclear energy continued to grow with Alphabet and Amazon announcing their own nuclear energy initiatives. Alphabet’s Google division is collaborating with Kairos Power on a series of small modular nuclear reactors (SMRs), with a combined capacity of 500 megawatts. Despite this being smaller than Microsoft’s addition, the SMR initiative is significant for its potential cost efficiency and faster construction times compared to traditional plants.
Amazon also revealed plans to work with Energy Northwest, Dominion Energy, and X-energy to construct four SMRs in Washington state and one in Virginia, potentially generating over 1 gigawatt of nuclear power.
The intriguing question remains whether investors should buy uranium stocks amidst this surge. Denison Mines, with a market cap of under $2 billion post-price increase and no debt, appears relatively inexpensive at 47 times trailing earnings. However, it is currently operating with a negative cash flow, unlikely to turn positive before 2028.
Cameco, with a valuation exceeding $24 billion, is the sector’s most valuable stock. Although profitable and generating positive cash flow, it trades at 129 times trailing earnings, suggesting caution despite projected profit growth over the next five years.
Energy Fuels, valued at $1.3 billion, is slightly less expensive than Denison. It is expected to become profitable next year and generate positive cash flow by 2027, but it remains unprofitable to date and has a history of not generating positive cash flow.
In a market driven by momentum, none of these uranium stocks appear cheap by traditional valuation metrics. Nonetheless, the small size of Energy Fuels might result in the most significant gains.
In the context of corporate affiliations, Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rich Smith does not hold positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Alphabet, Constellation Energy, and Microsoft and has specific options positions on Microsoft.
