Oil stocks versus nuclear stocks: which is better?
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When it comes to energy, oil and nuclear are the two main options investors have to choose from. Petroleum is the well-known raw material used to power cars and make plastics; nuclear power is a source of green energy that supplies electricity networks. Technically, nuclear energy is part of the utilities sector, not energy per se. But with the rise of the electric car, these two sectors are increasingly similar.
Oil and gas stocks have stood the test of time. With over 100 years of stable but volatile gains, they have made many investors rich. Nuclear stocks, however, should benefit more from future trends in energy consumption. In this article, I will explore oil stocks and nuclear stocks, so you can decide which is right for you.
The case of oil
Compared to uranium mining stocks, oil stocks are generally less speculative. Their revenues vary considerably with oil prices, but not as much as in the case of uranium stocks. They also pay quite large dividends.
Consider Cenovus Energy (TSX:CVE)(NYSE:CVE), for example. It is a Canadian oil producer that makes money by extracting and selling oil. In its most recent quarter, CVE’s revenue increased 74% and its profit increased by several hundred percentage points. On the back of these results, Cenovus management tripled the dividend. This is an example of what can happen with oil inventories when oil prices are high. Higher profits come with higher dividends, which pass on the company’s wealth to shareholders.
The case of nuclear
The arguments in favor of nuclear stockpiles are based on the growing need for green energy. Oil and gas are considered “dirty” energy and are being phased out under climate change regulations. Norway’s goal is for 100% of cars to be electric by 2025. Other countries have similar goals. Nuclear energy can power electric cars (as well as electric trains, trucks, etc.), but not oil and gas. The new generation of vehicles is loaded rather than full, and oil has little role to play in such a market.
It is for this reason that many people are interested in uranium stocks like Cameco (TSX: CCO) (NYSE: CCJ). Cameco is a Canadian uranium miner that supplies uranium to power plants around the world. There is no doubt that Cameco will have more customers if nuclear power generation increases. With more nuclear reactors comes greater demand for uranium. The EU has already signaled that it is ready to include nuclear among its “green” energy sources, which will give member states the green light to start building nuclear power plants.
The downside, for investors, is that electric cars don’t require as much fuel as today’s gas-powered cars. You can charge your electric car with grid electricity; gasoline-powered cars require large amounts of fuel. If the electricity grid is powered by nuclear energy, it only takes 27 tons of fuel to power an entire city. It takes millions of tons of coal to do the same thing. So no matter how much nuclear power grows, uranium will never be a huge commodity like oil and coal are today – you just don’t need that much uranium to power the network.
As an alternative to uranium miners like Cameco, you might consider nuclear utilities like Duke Energy. Utilities have a proven business model that is heavily protected by the government. They are less volatile than mining companies and their business is known to be very stable. It’s a way to invest in the future of nuclear energy without betting the barn on speculative mining stocks.