As technology companies move forward with data center plans and geopolitical tensions rise, demand for reliable power continues to grow. According to the bank of america According to the Institute, demand for electricity in the United States will skyrocket at a rate five times faster over the next decade than in the last.
One energy source that is regaining popularity is nuclear energy. This is because it is a cleaner, more reliable source of energy that data center operators and industrial operators can rely on. The United States has committed to quadrupling its nuclear energy capacity by 2050, which will lead to an increase in demand for uranium and a significant need for new nuclear facilities in the next decade.
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For investors looking to take advantage of this trend, a brilliant energy stock to hold for the long term is cameco(NYSE: CCJ). Here’s why.
As geopolitical tensions rise, countries seek energy security. When it comes to nuclear energy, Russia has traditionally been a major supplier of uranium and related nuclear fuels. However, following Russia’s invasion of Ukraine, the United States passed the “Russian Uranium Import Ban Act,” forcing utilities to look for alternative suppliers of these key fuels. Right now, companies have exemptions to purchase uranium from Russia if there are no viable alternative sources, but these exemptions will expire on January 1, 2028.
This is where Cameco has a notable advantage. The North American uranium company has key assets in high-grade uranium mines, including McArthur River and Cigar Lake, in northern Saskatchewan, Canada. It also operates Key Lake Mill, the world’s largest uranium mill, where it processes high-grade ore from the McArthur River Mine. On top of that, it owns a 40% stake in the Inkai joint venture, a low-cost in-situ recovery operation in Kazakhstan.
Cameco’s high-quality mines not only allow it to produce more uranium with a smaller footprint, but are also strategically located in North America, positioning it as a key supplier of nuclear inputs to help diversify away from Russian sources. Additionally, the company avoids the volatility associated with political and regulatory uncertainty in other major uranium-producing countries such as Kazakhstan, Niger and Uzbekistan.
Another benefit of owning Cameco is its stake in Westinghouse Electric, which provides nuclear technology, design and engineering services for nuclear plants around the world. Cameco owns a 49% stake in the company, with Brookfield Renewable Partners owning the remaining 51%.
Westinghouse builds AP1000 large-scale nuclear reactors, which are fully licensed and operational, and its technology is found in approximately half of the world’s operating nuclear plants. By owning a stake in Westinghouse, Cameco shares in the company’s success, especially as countries push to increase their nuclear energy capacity. Last year, Cameco’s share of Westinghouse’s revenue was $3.5 billion, while its adjusted EBITDA rose 61% to $780 million.
Image source: Getty Images.
Last year, the US government partnered with Westinghouse, Cameco and Brookfield to build more than $80 billion in new reactors to meet the growing power demands of data centers and other operators. As part of this, Westinghouse aims to have 10 new AP1000 reactors under construction in the US starting in 2030.
Westinghouse profits from nuclear construction and maintenance of those reactors when they come online. These nuclear power plants require specialized maintenance and can provide a revenue stream for the next 60 to 80 years. Not only that, but these new reactors will need a lot of fuel and Cameco is in a unique position to provide it.
Cameco shares have experienced volatility recently and are down 21% from their recent high amid weakness in the broader market and volatility driven by the ongoing conflict in Iran. Investors should be aware that the stock is vulnerable to big swings, especially given its lofty valuation of 72 times this year’s forward earnings.
That said, analysts are projecting strong growth for the uranium miner in the coming years, with GAAP earnings per share (EPS) expected to grow from $0.99 last year to $2.68 by 2028, representing a compound annual growth rate of 39% over the next three years.
Given Cameco’s strong market position and growing demand for uranium in the coming decades, I think now is an excellent time for long-term investors to buy the dip in this energy stock.
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Bank of America is an advertising partner of Motley Fool Money. Courtney Carlsen has positions at Cameco. The Motley Fool has posts on and recommends Cameco. The Motley Fool recommends Brookfield Renewable. The Motley Fool has a disclosure policy.
1 Brilliant Energy Stock to Buy Now and Hold for the Long Term was originally published by The Motley Fool
