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What Japan's nuclear crisis means for investors

David Fessler, Investment U
0 Comments| March 16, 2011

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There’s no question that the earthquake/tsunami disaster in Japan is another monumental human tragedy.

One of the most serious problems is the catastrophic damage caused to Japan’s nuclear power plants – an issue that will spill into the global nuclear power industry at large.

So far, two explosions have rocked the heavily-damaged Daiichi nuclear plant and as many as three reactors at other nuclear power plants may have also sustained damage.

Authorities are currently operating under the assumption that a partial overheating and melting of the reactor cores has either already occurred, or is in process at Daiichi Units One, Two, and Three.

Unit Two may in fact turn out to be the worst of them, as its fuel rods may have been totally exposed for some time.

To combat the problem, authorities are pumping boric acid and seawater into the reactor vessels, which stops the nuclear chain reaction and provides further cooling to the reactor cores.

And while it also effectively prevents those reactors from ever operating again, it significantly lessens the chance of a full Chernobyl-like core meltdown and the catastrophic release of large quantities of radioactive gases into the atmosphere.

To say that the events in Japan will deal a blow to the nuclear power is a given. However, it remains to be seen whether it’s the ultimate death knell. Let’s take a look…

Taking the world’s nuclear pulse

Worldwide, there are currently over 60 units under construction…

  • China: The country already has 13 nuclear power plants in operation, 25 under construction and plans to start building more soon.
  • India: Currently has 20 reactors in operation and four under construction. A further 20 more are planned.
  • Germany: It’s a different story in Europe’s biggest nation, where nuclear power continues to be a contentious issue. The government recently made a controversial decision to extend the life of the country’s 17 nuclear power plants, even in the face of a survey that said over 70% of Germans are opposed to nuclear.
  • The United States: Like Germany, we haven’t exactly been on a mission to approve plans for new nuclear power plants lately, either. In fact, America hasn’t seen a new nuclear power plant brought online in over 30 years. And the only one currently under construction is in Tennessee.

Is that changing?

Nuclear stocks: Buy or sell?

Southern Company (NYSE: SO, Stock Forum) recently received approval from the Department of Energy to build two additional units at its Vogtle Nuclear Power facility, where two are already in operation.

And while preparation of the site for Unit 3 (slated to begin operating in 2016) has been underway for some time, meaningful building construction has yet to start. It’s a safe bet that with the inevitable delays that continually plague construction, it probably won’t fire up until 2020.

In fact, if Representative Ed Markley (D-MA) has anything to say about it, the bulldozers will probably stay parked. On CNN yesterday morning, he stated: “We should probably put nuclear plant construction on hold for the moment.” Representative Joe Lieberman essentially said the same thing.

Of the 104 commercial nuclear power plants in the United States that are operational, 69 are pressurized water reactors and 35 are boiling water reactors. Together they generate about 806,000 Gigawatts of electricity, or about 30% of all the electricity generated in the United States.

Trouble is, 23 of them are similar in design to those currently failing in Japan. In the short-term, investors would be wise to steer clear of any nuclear stocks like uranium producers Cameco (NYSE: CCJ, Stock Forum) and USEC (NYSE: USU, Stock Forum) at least until we see how the fluid events in Japan play out.

The bottom line is this: Don’t buy these stocks now, in hopes of a contrarian bounce. In the short term, we could see more pullbacks and increased volatility as the situation unfolds.

However, once the situation settles, these stocks (and others) could offer excellent buying opportunities, as there’s no question that nuclear power will continue to play a significant role in the world’s electrical power generation equation.

Disclosure: The author does not hold positions in any of the stocks mentioned



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