At times nuclear energy is hard sell. Even though the uranium doesn’t emit large amounts of greenhouse gases or require complicated transportation pipelines, the threat of a radiation leak has many people ready to abandon nuclear energy altogether. The Southern Company (NYSE:SO) is trying to prove that nuclear energy still has a future in America with a new nuclear power plant. Amid the negative sentiment, there are a number of reasons to be bullish on uranium.
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Southern Company is one of the stronger utilities on the market. It posted earnings per share (EPS) of $2.37 in 2010 and is expected to make $2.75 per share in 2013. Its current yield of 4.6% and five year dividend growth rate of 3.76% make it very attractive for dividend investors. Its debt load is reasonable with a total debt to equity ratio of 1.22.
The Future for Uranium Producers
There are number of bullish factors for uranium, and the potential for increased demand from the U.S. is only icing on the cake. Uranium is experiencing supply constraints and increased Asian demand. The majority of new nuclear demand will come from China with 28 nuclear reactors under construction and more on the way. Cameco Corporation (USA) (NYSE:CCJ) is a high quality uranium miner in Canada and it has already positioning itself to benefit from Chinese growth. Its Cigar Lake facility is expected to provide 18 million pounds per year of production once it is fully operation.
Even with Chinese growth and coming supply constraints from an ending U.S.-Russia deal, the Fukushima disaster has had an impact on Cameco. The company was forced cut back on a number of growth projects, but it is still profitable with a gross margin of 36.1% and a profit margin of 6.4%. With a total debt to equity ratio of 0.27, Cameco is a safe bet for long term investors.
Uranium Energy Corp. (NYSEMKT:UEC) is a smaller uranium producer using a low cost in-situ method to extract uranium in Texas. The company is still in startup mode with operating income losses. Regardless, its facilities are finally starting to produce revenue, and it is expect to post an EPS of $0.22 in 2014.
This company’s in-situ method is estimated to be profitable at $40 to $50 per pound, while conventional mines need a minimum of $80 per pound. With current spot prices around $40 per pound and long term prices around $60 per pound, Uranium Energy is in a great position to grow. The company has no debt and a sufficient cash reserves with a quick ratio of 3.1 and a current ratio of 3.6. While the company is still rather risky due to its small size and lack of profits, it is a great company to watch as low uranium prices discourage the development of conventional uranium mines.
Conclusion
The Southern Company (NYSE:SO) is a strong company for risk adverse investors. The utility offers dependable income with its high yield and strong dividend growth. The company is innovating America’s nuclear industry with new prefabrication techniques. Although the company’s new nuclear plants construction schedule has slipped, South Company is a relatively diversified way to invest in uranium.
Cameco is a strong uranium miner with the mines and experience to wait out the current challenges. The company has established contacts in China and is already powering the Chinese economy. Uranium Energy is a good company to watch as it grows its operations and comes closer to profitability. While its small size makes it risky for the time being, its low cost production techniques will help it to be profitable in the long term.
Joshua Bondy has no position in any stocks mentioned. The Motley Fool recommends Southern Company.
The article With Southern Company, Nuclear Still Has a Chance originally appeared on Fool.com.
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