It’s hard to miss the fact that nuclear stocks — which were skunks at the garden party as recently as Labor Day — are now on a tear. But if the nuclear sector is beginning to come back from the brink, what’s the best play for the income investor to minimize risk and maximize reward? How about nuclear exchange-traded funds (ETFs), which lower individual stock risk, pay out solid dividends and offer exposure to a sector that’s emerging from the wilderness.
With volatile oil prices and a strong business case for clean, domestic energy sources, investors kicked off 2011 with high hopes that the “nuclear boom” would pay off big. Then came Japan’s earthquake and tsunami in March, which led to a nuclear disaster. Shares of nuclear stocks and funds were pummeled by fallout from the disaster at Tokyo Electric Power’s Fukushima I reactors.
In the aftermath of a disaster worse than Three Mile Island, many investors gave up the nuclear industry for dead, focusing on clean energy alternatives like solar and natural gas. But as InvestorPlace Editor Jeff Reeves sagely pointed out days after the Fukushima crisis: “But as with the Gulf of Mexico oil spill, it is important for investors to remember that one disaster cannot — and should not — kill an entire industry.”
Time proved Reeves right. After months of decline, nuclear stocks are starting to bounce back from the brink, rising 30% to 66% in the past month as investors gain confidence that the nuclear industry’s fortunes are not on the verge of meltdown.
It also didn’t hurt that solar stocks took a hit over the Solyndra scandal and allegations of China’s “dumping” of solar panels into the U.S. solar industry at artificially low prices. New environmental concerns over the controversial shale gas exploration method known as “fracking” demonstrates that there’s no risk-free way to replace oil.
So with nuclear energy still a strong option for energy, here are four nuclear ETFs that could be poised for a comeback:
- Global X Uranium ETF (NYSE:URA): URA is an exchange-traded fund that tracks the performance of Solactive Uranium Index. With a market cap of $191.2 million, the ETF has a current dividend yield of about 4% and is down more than 50% year-to-date. In the past month, however, URA is up about 20%. At $9.79, it’s trading more than 33% over its 52-week low of $7.06 last month. The ETF’s major holdings include Coalcorp Mining, Uranium One and Paladin.
- Market Vectors Uranium & Nuclear (NYSE:NLR): NLR looks to replicate the price and yield of the DAX global Nuclear Energy Index, a modified market-capitalization index. With a market cap of $120.1 million, it has a current dividend yield of 5.7% and a negative year-to-date performance of nearly -28%. In the past month, its return is about 7%. At $18.54, the ETF is trading more than 14% above its 52-week low of $15.74 last month. The ETF’s major holdings include utilities Constellation Energy (NYSE:CEG) and Exelon (NYSE:EXE), as well as Paladin.
- iShares S&P Global Nuclear Energy (NASDAQ:NUCL): NUCL seeks to match the price and yield performance of the S&P Global Nuclear Energy Index. With a market cap of $13.55 million, the ETF pays a dividend yield of about 4% and is down about 21% year-to-date. In the past month, its performance is 4.4%. Major holdings include energy construction firm McDermott International (NYSE:MDR) and utilities Exelon and First Energy (NYSE:FE). At $34.57, NUCL is up 14% from its 52-week low of $30.35 last month.
- PowerShares Global Nuclear Energy Portfolio (NYSE:PKN): PKN tracks the performance of the WNA Nuclear Energy Index. With a market cap of nearly $16.5 million, PKN has a current dividend yield of 4.3% and is down 23% year-to-date. Its one-month performance has improved to 6.6%. At $16.67, PKN is up 11% over its 52-week low of $14.19 last month. Holdings include nuclear reactor manufacturers Areva and Shaw (NYSE:SHAW).
As of this writing, Susan J. Aluise did not own a position in any of the aforementioned stocks.
