Portfolio profits from nuclear power

"Market Vectors Global Nuclear (ASE: NLR) offers investors a well-diversified play on the booming nuclear power industry," notes Paul Tracy.

The editor of The ETF Investor -- a top notch service that offers in-depth analysis of exchange-traded funds -- turns its analysis towards the outlook for the nuclear power sector. 

"The ETF is designed to track the performance of companies that derive at least half their total revenues from the nuclear power business. That list includes firms that build nuclear power plants, mine uranium, and generate electricity in nuclear plants.

"Demand for electricity is surging globally, with most of that growth coming from fast-growing emerging markets like China and India. In fact, according to the Department of Energy, Chinese and Indian power demand is expected to nearly triple between now and 2030.

"These nations (and many others) are choosing to expand their nuclear power plant capacity to meet some of that demand. China has been aggressively opening new plants in recent years and has plans to open dozens more in an effort to triple nuclear's share of Chinese electricity supply by 2030.

"And India has plans to open up as many as 15 plants over the next 20 years; the nation has been pursuing deals with the U.S. to import more advanced nuclear power technology. In India, nuclear is expected to jump from 2.4% of supplied electricity today to more than 8.5% in 2030.

"And nuclear continues to grow in the developed world as well. France, for example, already gets about 80% of its power supply from nuclear and is building new plants to replace its ageing fleet. Meanwhile, U.S. utilities are expected to file as many as 34 new permits for plants.

"Nuclear offers several key advantages as a fuel. First, while nuclear plants are expensive to build, ongoing fuel costs are low. Nuclear plants require only a small amount of uranium to operate, and the price of uranium is only a small component of the cost of generating nuclear power.

"Rising natural gas, oil and coal prices can push up the price of electricity significantly, but the same can't be said about uranium.

"Secondly, environmental issues have become a major growth catalyst for nuclear. Nuclear plants emit no greenhouse gases, sulphur dioxide, or any other pollutant.

"Most analysts agree that building more nuclear plants is one of the only ways countries can meet future energy needs and reduce emissions of these pollutants.

"The U.S., EU, and many other countries plan to or already have implemented carbon taxes or cap-and-trade systems to reduce emissions. Stricter environmental standards will be a major driver for growth in coming years.

"Some of the best plays on the industry are foreign firms that do not have ADRs listed on the U.S. exchanges -- the ETF offers access to securities that would be tough for most investors to buy.

"In addition, many smaller uranium mining firms and parts suppliers can be volatile -- by broadly diversifying its holdings, NLR offers a low-risk way to play the growth in nuclear power.

"As more countries implement laws limiting carbon emissions, I expect growth in the nuclear power business to accelerate. Furthermore, countries are increasingly worried about surging costs for all sorts of energy-related commodities in recent years.

"Further, a desire to reduce dependence on imported commodities and control costs is also driving more interest in nuclear technology. Already, contracts to build new plants are being awarded in China, Europe and the U.S.

"The average holding in NLR currently trades with a P/E of around 20. Given the strong growth expected in the industry, that does not seem excessive. Overall, I think the fund is a solid buy under $40 per share."