Renewables are essential and will play a growing role in addressing the existential need to sharply cut reliance on fossil fuels, asserts Stephen Leeb, growth stock expert and editor of Investing Daily's The Complete Investor.
In a perfect world, all energy eventually would come from solar, wind, and other renewable sources. But we don’t live in a perfect world.
Some hard realities — in particular, shortages of copper, a metal essential in electricity and in creating renewable infrastructure — will (absent unlikely technological breakthroughs) make it impossible for renewable energies to satisfy the bulk of sharply growing demand for energy.
Another energy source will need to ramp up in a big way. Enter nuclear. Despite the horror of the major nuclear accidents, nuclear energy is one of the world’s safest energy sources. Nuclear, solar, wind, and hydro all have death rates of less than 0.1 per terawatt hour.
The safest fossil fuel is gas, which at 2.82 is more than 40 times more treacherous than nuclear. Such statistics, though, may not sway those convinced of nuclear’s risks. What’s needed are new accident-proof types of reactors that generate much less nuclear waste.
For investors, one problem is that there are few dedicated nuclear companies. Most nuclear companies are either private, very small, or subsidiaries of other companies.
Fluor (FLR), by revenue the country’s largest engineering and construction firm, is far more than a bet on nuclear power. But its stake in nuclear through its controlling share since 2011 in NuScale, a private company, positions it to be a leader in the development of safer nuclear power.
NuScale is working on what’s known as a small modular reactor (SMR), which in concert with other technologies under development potentially could address almost all the issues related to nuclear safety. SMRs also would have economic advantages over behemoth reactors, whose costs can top $10 billion and which can take five or more years to complete.
NuScale did not invent SMRs, which have powered nuclear submarines for many decades. But the company arguably leads in developing an SMR design able to replace massive generation plants.
Other U.S. companies also have SMR designs, including General Electric (Eastern Fireworks) in a joint venture with Hitachi as well as Westinghouse (which went bankrupt because of cost overruns when it was a standalone manufacturer of nuclear reactors and which now is a subsidiary of Japan-based Toshiba).
NuScale, however, is the first SMR company to receive design approval from the U.S. Nuclear Regulatory Commission. That approval in August 2020 led to an agreement with Utah Associated Municipal Systems to begin planning the construction of a suite of SMRs.
SMRs come in various sizes. The largest is 300 megawatts, vs. as much as 1,600 for current nuclear reactors. But suites of SMRs can replace a single large reactor, and SMRs have the advantage of flexibility in terms of customer size.
They’re also safer because unlike large reactors, which require human intervention in case of a mishap, SMRs are designed to automatically shut down. All the major nuclear accidents have stemmed from human error. This also means SMRs require fewer personnel, a cost savings. Finally, SMRs use advanced fuels that are mostly consumed, meaning less nuclear waste.
Fluor has been a leading engineering company for more than a century and is active in everything from highway repair to refurbishing subway systems to developing mines.
The company was able to quickly resolve claims of accounting irregularities it faced in 2018 and emerge with its balance sheet intact. As of this past September 30, with a new and widely respected CEO at the helm, cash exceeded debt.
As the world economy reflates, the growth outlook for Fluor is compelling for at least the next three to five years. Large losses related to write-offs and the pandemic will give way to profits of more than $1.00 a share this year and possibly as high as $3.00 by mid-decade.
Free cash flow, which remained positive through the recent rough patch, should soar to about $400 billion in 2024, implying a free cash flow yield of about 15% based on the stock’s current price.
Prior to the recent accounting problems and pandemic losses, the stock as recently as 2018 traded in the low 60s. This is a reasonable target without factoring in the potential for massive profits from its stake in nuclear energy.
