Prediction: 3 Nuclear Stocks That Will Pull Back Under a Trump Presidency

Source The Motley Fool

Nuclear stocks are glowing green.

Uranium mining companies such as Cameco, Denison Mines, and Uranium Energy have marched higher in lockstep over the past 52 weeks, rising 26%, 28%, and 30%, respectively, through close of trading Tuesday. Utility companies that use nuclear power plants to produce electricity seem popular, too. Inspired by news of its groundbreaking deal to reactivate Three Mile Island and use it to power Microsoft server farms, Constellation Energy shares have gained 87% in 52 weeks -- twice as much as the mining stocks.

But none of those are what I want to talk about today.

Instead, I want to talk about the nuclear power start-ups that hope to replace traditional nuclear power plants like the ones Constellation operates, and generate nuclear power at the local level, using small nuclear reactors. I want to talk about NuScale Power (NYSE: SMR), Oklo (NYSE: OKLO), and Nano Nuclear Energy (NASDAQ: NNE) -- and why they're about to cost investors a lot of money.

A revolution in nuclear power

Now I don't want to lump these three stocks all together entirely. There are differences. NuScale Power and Oklo specialize in the development of small modular nuclear reactors, designed to produce a fraction of the power output of a traditional 1 gigawatt-plus nuclear power plant. NuScale's Voygr modules, for example, are designed to output 77 megawatts of power each.

Like the name implies, though, "Nano" Nuclear is going even smaller, focusing on microreactors producing as few as one to 20 megawatts (i.e., as little as 1/1,000 the size of a traditional nuclear reactor). On its website, Nano Nuclear touts its microreactors' suitability for even small-scale applications such as powering satellites, spacecraft, and moon bases.

But in general, yes, all three of these companies are developing smaller-than-usual nuclear reactors. More importantly for investors are the similarities in stock performance. Over the last 12 months, Oklo stock is up more than 100%, Nano Nuclear shares have risen nearly 350%, and NuScale stock is approaching an 800% gain!

The trouble with nuclear stocks

Oklo, Nano Nuclear, and NuScale, though, also differ from other "nuclear" stocks in another respect: Electric utility stocks such as Constellation usually are consistently profitable, and even uranium miners Denison and Cameco (if not Uranium Energy) generally manage to earn a profit.

The start-ups attempting to build a better nuclear mousetrap do not.

NuScale, the best performing of the bunch so far, has racked up operating losses of nearly $1 billion over the past five years. Oklo and Nano Nuclear haven't (yet), mainly because they haven't even been in business for five years. Neither Oklo nor Nano Nuclear even produce revenue.

True, analysts polled by S&P Global Market Intelligence see Oklo eventually turning profitable (in 2028), followed by NuScale in 2030, and Nano Nuclear in 2031. But really, those dates are just guesses. Until these companies are consistently generating revenue, it's impossible to say what kind of profits they might earn on those revenues that they don't yet have, four to six years in the future.

For that matter, these companies may not even be around in four to six years. NuScale, for example, has only $156 million in the bank, and is currently burning nearly $156 million a year in negative free cash flow. Nano Nuclear has $14 million in cash, and a burn rate of $7 million. Oklo's arguably in the strongest position, with $235 million in cash and a burn rate of only $26 million. That gives the stock a nine-year lifespan so long as it's careful with its cash.

The next 10 (or four) years

If I absolutely had to bet on any of these companies to succeed, it would probably be Oklo. But it's still a risky bet.

With President Trump heading into the White House, the next four years could be good ones for nuclear stocks -- or they might not be. While the president-elect is known to disfavor solar and wind power and prefer oil and gas (i.e., "drill baby, drill"), his thoughts on nuclear power are less certain. And even if the new administration does promote new nuclear technologies in a continuation of its "all of the above" energy policies from 2016 to 2020, it takes time for new technologies such as small modular reactors to develop. Time to get projects approved, and time for those projects to turn a profit.

Long story short, there's no guarantee that four years of President Donald J. Trump will benefit new nuclear stocks, or even give them enough time to get their technologies finalized, approved, and built to an extent they're generating meaningful revenue. What seems more likely is that over the next four years, at least a few of these companies will start running out of cash -- causing investors to rethink their optimism about nuclear stocks.

The best time to sell and cash in on these stocks' remarkable run-up may be before everyone else realizes this is about to happen.

Don’t miss this second chance at a potentially lucrative opportunity

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Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.

See 3 “Double Down” stocks »

*Stock Advisor returns as of November 11, 2024

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends Cameco, Constellation Energy, and NuScale Power and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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