Best Energy Sector Bets

Lots of readers have asked if The Kelly Letter is snapping up bargains in the energy sector. I’ve found that most people divide the sector into two groups: traditional fossil fuels and alternative energy, the latter being considered solar and wind mostly, with occasional mentions of hydrogen and geothermal.

However, the best buy in the energy sector these days has nothing to do with any of that. It’s alternative energy, alright, but not the kind that gets placard-carrying crowds excited.

First, a little background. Here’s where the world stands:

  • Fossil fuels have peaked or will peak in the next ten years.

  • Demand for energy is rising because the population is growing and more of that population is emerging into a lifestyle of high energy consumption via cars, electronic appliances, and such.

  • Environmental damage from fossil fuel use is reaching a critical and, some say, irreversible stage.

  • We must change to non-fossil energy sources ASAP.

The most promising way to make said change ASAP is by switching from gasoline cars to all electric cars. There are two initial problems with that: one, batteries are still lousy despite major breakthroughs in the past couple of years and promising technologies on the horizon and, two, the electric power grid is powered mostly by coal-burning power plants, and coal is the dirtiest fossil fuel.

So, we should look for investments in either batteries for electric cars or better ways to power the electrical grid for recharging those batteries. Battery companies are mostly private these days, making it hard to invest in them outside of venture capital firms. Besides, each month seems to bring a new technology and it’s very hard to know which one will win out. Every inventor scoffs at every other inventor’s ideas, yet they’re all moving ahead briskly as a group. Selecting one winner from the collective effort is hard, and a lot closer to guessing than investing. I certainly don’t have an edge.

That leaves alternative ways to power the electrical power grid, and the best one is nuclear. This confuses people because nuclear is not associated with being good for the environment, but it should be. Nuclear waste is imminently easier to control than carbon waste, mainly because there aren’t millions of individual nuclear power plants driving to the grocery store. If nuclear power plants are widely implemented as a way to charge the electrical grid, there will be just hundreds or thousands, depending on various efficiencies, and they will be closely monitored by the government and private firms for safety.

There hasn’t been a major nuclear power plant problem since Chernobyl in 1986, and even that killed only 31 people. Almost all nuclear “disasters” end in a handful of people being exposed to radiation, and that’s it. Very rarely does anybody die, certainly far fewer than die from, say, car accidents. Finally, going forward the safety record will only improve, and that’s from an already reassuring track record.

Nuclear power does not pollute, is very efficient, and would enable us to recharge car batteries with no downside. It would be cheaper than gasoline and far, far better for the environment.

It just so happens that the stocks of major players in the nuclear industry are looking cheap these days. The two I’m examining closely for The Kelly Letter are Cameco, the world’s largest uranium miner, and USEC, which operates the only uranium enrichment facility in the United States and serves as the U.S. government’s executive agent in the nuclear nonproliferation program with Russia.

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