Japan Nuclear Crisis: Investment Implications

The average nuclear reactor generates hundreds and even thousands of times as much electricity as the typical solar or even wind power project. As a result, building more nukes is the easiest way to displace large amounts of fossil fuels in one fell swoop and thereby increase energy independence and reduce greenhouse gas emissions.

— Roger Conrad, Utility Forecaster

I feel so bad for the people of Japan. To be hit by a triple whammy of a 9.0 earthquake, a tsunami, and a nuclear power disaster is just too much tragedy for any country to bear. While Japan’s confirmed human death toll is officially around the 2,500 mark, this number is sure to increase substantially as missing persons are reclassified as dead. Tens of thousands more Japanese are at risk from a continuing nuclear crisis at Tokyo Electric Power’s Fukushima nuclear power plant on the north-east coast of Japan. The initial earthquake shut down the electric grid responsible for cooling the Fukushima plant’s three reactors and the subsequent tsunami flooded the diesel-powered backup generators, making them inoperative as well.

Nuclear Meltdown in Japan

Japanese nuclear engineers have been forced to cool the Fukushima reactor cores with seawater, which effectively ruins any chance that the Fukushima reactors will ever be restarted. Information is spotty, but U.S. experts believe that all three Fukushima reactors have suffered partial meltdowns of fuel rods, but the no. 1 and no 3 reactors are probably under control. In contrast, the no. 2 reactor remains out of control, radiation leakage is increasing, and there are fears that the containment building around the nuclear fuel rods has been breached.

According to Princeton University nuclear physicist Frank von Hippel, the current Japanese nuclear crisis is “way past Three Mile Island already.” To put this in context, the 1979 nuclear accident at the Three Mile Island nuclear power plant in Pennsylvania involved a partial meltdown and the release of some radioactive steam, but the containment building remained intact. Based on the seven-point International Nuclear Event Scale, Three Mile Island rated a five.

Fukushima is not as Bad as Chernobyl

The worst nuclear accident of all time occurred in 1986 at the Chernobyl nuclear power plant in the Ukraine. Chernobyl rated a top disaster score of seven because the plant didn’t even have a containment building and the explosion of its nuclear core occurred while the plant was operating at full power. Twenty-five years after the Chernobyl accident, there is still a 16-mile radius “dead zone” around the crippled nuclear plant.

In contrast, Fukushima’s power was shut down immediately at the time of the earthquake and the explosions so far have involved only hydrogen gas outside of the nuclear core, not the core itself. I’m guessing that Fukushima will eventually be rated a six on the disaster scale, right in between Three Mile Island’s five and Chernobyl’s seven.

Nuclear Safety is Under a Global Regulatory Microscope

Japan’s nuclear disaster is forcing government officials worldwide to reconsider nuclear safety. Switzerland has frozen all nuclear plant construction pending a comprehensive safety review and Germany has suspended for three months its decision whether or not to extend the life of its existing nuclear plants by upwards of 12 years. In contrast, Russia, China, South Africa, Chile, and Poland have reiterated their commitment to build more nuclear reactors. As for the United States, President Obama stated on Friday (Mar. 11th) that he remains committed to the following goal:

By 2035, 80 percent of our electricity will come from a broad array of clean energy sources –- from renewables like wind and solar and homegrown biofuels, along with natural gas, clean coal, and nuclear power.

In addition, Deputy Secretary of Energy Dan Poneman stated on Monday (Mar. 14th) that:

we view nuclear energy as a very important component to the overall portfolio we’re trying to build for a clean energy future. From a policy perspective, we will continue to operate our reactors and seek to operate them safely. We will continue to seek to build nuclear into a part of a responsible energy future

The U.S. has 104 nuclear plants in 31 states that collectively produce 20% of the nation’s electricity. U.S. electric utility companies are affirming the safety of their nuclear plants and argue that Japan’s predilection for earthquakes and tsunamis doesn’t apply to them. Chicago-based Exelon (NYSE: EXC), the largest nuclear power utility, and New Orleans-based Entergy (NYSE: ETR), the second-largest nuclear power utility, have both issued statements.

Southern Company (NYSE: SO), which is planning to construct in Georgia the first two new nuclear power plants in more than 30 years, issued a statement stating that “the company does not anticipate the events in Japan to impact the construction schedule or the company’s ability to stay on budget.” Southern has received $8 billion in loan guarantees from the U.S. Department of Energy to help finance the project. Southern’s new plants will be based on the high-tech AP1000 design that can operate without electricity for three days on gravity and evaporation.

The Nuclear Regulatory Commission (NRC) is scheduled to approve the AP1000 design soon, but Massachusetts congressman Edward Markey has sent a letter to the NRC arguing that the AP000 design is unsafe. Markey also wants potassium iodide pills to be distributed to anyone living within 20 miles of a nuclear power plant as a prophylactic against thyroid cancer if radioactive Iodine-131 is released.

Besides Congressman Markey, other Democratic congressmen are calling for hearings on safety and Connecticut Senator Joe Lieberman has called for a moratorium on all nuclear plant construction planning until regulators have had time to learn lessons from Japan’s disaster.

Investment Implications of Japan Nuclear Disaster

In the short term, the clear losers are nuclear-related stocks. The Global X Uranium ETF (NYSE: URA) has collapsed 30% since last Friday and the Market Vectors Uranium and Nuclear Energy ETF (NYSE: NLR) is down 18%. 

The clear winners are energy substitutes for nuclear energy, such as solar power. The Guggenheim Solar Energy ETF (NYSE: TAN) is up 11% since last Friday. Natural gas should also benefit, as investment bank Societe General predicts that Japan will have to import more liquefied natural gas (LNG) to make up for the lost nuclear energy capacity and demand (18% of Japanese electricity currently comes from nuclear).

LNG stocks include Russia’s Gazprom (Other OTC: GZPFY.PK), Royal Dutch Shell (NYSE: RDS-A) (which owns a 27.5% interest in Russia’s only LNG plant), and U.S.-based Cheniere Energy (NYSE: LNG). Natural gas companies in the U.S. could also be good buys if the Democrats in Congress succeed in slowing down nuclear construction. First Trust ISE-Revere Natural Gas Index Fund (NYSE: FCG) is one way to play this domestic theme.

Uranium ETF Option Play

Some analysts think the selloff of nuclear-related stocks is overdone. You could play a bounce-back in the nuclear and uranium ETFs discussed above. For example, an option play on the Global X Uranium ETF (URA) makes sense to me. Specifically, with URA currently trading at $13.50, selling a July $12.50 put (ticker: URA110716P12.5) for $1.30 per share ($130 per contract) yields a return of 11.8% for 122 days. If the ETF closes below $12.50 at July expiration, your net cost for purchasing URA would be only $11.20, which is 17% below the ETF’s already depressed price. Seems like a low-risk, high-return proposition given the continued need for uranium.

Nuclear Stocks

Or you could be more selective and consider some individual stocks like those below:

Nuclear Bounce-Back?

Nuclear-Related Company

% Change since last Friday


Shaw Group (NYSE: SHAW)


Provides engineering and construction services for nuclear power plants.

Curtiss-Wright (NYSE: CW)


Receives 20% of its revenue from commercial nuclear power.

Cameco (NYSE: CCJ)


Uranium producer that sells 10% to 15% of its annual volume to Japan

Exelon (NYSE: EXC)


Largest nuclear power utility in the U.S. Any additional regulatory costs will likely be passed through to ratepayers.

Invest in Utility Stocks with the Help of Utility Forecaster

Don’t want to mess with uranium? Utility stocks that provide “essential services” are near-monopolies that state regulators protect from competition. In return, many of these utilities (e.g., electric, natural gas, water, and telecommunications) are guaranteed a healthy and stable return on investment. Utility stocks are an easy and safe way to gain equity exposure without all the hassle and risk. 

Roger Conrad, advisor of the market-beating Utility Forecaster income service, has carefully selected more than 35 dividend-paying stocks, as well as 14 fixed-income preferred stocks and bonds, that will help you compound wealth safely.  To find out the specific names of his favorite income investments right now, consider giving Utility Forecaster a try today!