In 1979, a partial core meltdown at Three Mile Island brought the U.S. nuclear power industry to a standstill. Today, with a crisis of potentially much greater magnitude unfolding after Japan's earthquake and tsunami, some investors who follow the industry are surprisingly sanguine. A few are even describing it as a buying opportunity for several stocks in the energy sector.
With so much uncertainty surrounding the extent of the damage in Japan, analysts say the future of the nuclear power industry could shift. Some pros expect nuclear power providers to face new headwinds from regulators on safety standards, not to mention a public backlash. Even Senator Joe Lieberman, a proponent of nuclear energy, said this weekend that it may be worth putting the brakes on new nuclear plants until the Japanese crisis is sorted out. Meanwhile, the anxiety has hobbled nuclear shares. On Monday, shares of Entergy ( ETR ) , one of the two biggest nuclear-power operators among U.S. energy companies, fell 5%; Cameco Corp., which produces uranium used in nuclear plants, was down 14%.
SmartMoney's complete coverage of what the disaster in Japan means to your wallet:
But some experts say that compared to the era of The China Syndrome , nuclear companies have enjoyed an upbeat climate of late– thanks in part to concerns about the environment. Public sentiment has swung toward increasing support for nuclear power in recent years as the US has explored more alternatives to fossil fuels. Indeed, prior to the Japan disaster, shares of utilities with significant nuclear exposure, including Entergy and Exelon ( EXC ) , were trading above their long-term average price-to-earnings ratio. Jay Dobson, analyst with brokerage Wunderlich Securities, expects the impact on many nuclear-oriented stocks to be similar to what happened with oil drillers in the wake of last year's Gulf of Mexico spill disaster: after a sharp dip, a steady rebound. "The idea we are going to stop operating existing plants is laughable," Dobson says.
Granted, life may get tougher for companies that are waiting to build plants. Currently, there are 104 operating nuclear reactors in the US and just a handful of new ones on the drawing board. But, ultimately, a few months of additional scrutiny or delay shouldn't have a big impact on these firms since it typically takes several years to get a new reactor up and going, says Paul Franzen, senior utilities analyst at Edward Jones. He sees potential opportunity in utilities like Scana ( SCG ) , which has plans to build a new reactor, and expects less than the feared impact on bigger players like Exelon, which already supplies about 20 percent of the country's nuclear power.
To be sure, industry experts say the situation merits some close monitoring, and more widespread damage in Japan could still be a game-changer for the nuclear industry. But even that possibility has already created some short-term winners elsewhere in the energy sector. Providers of "clean energy" like solar power have already received a bump, with the Guggenheim Solar ETF ( TAN ) and First Solar ( FSLR ) , both up 5% on Monday. And James Dailey, portfolio manager of the $200 million TEAM Asset Strategy Fund ( TEAMX ) , says that caution about nuclear power is good news for natural gas providers, whose prices have been cheap recently because of a perceived gas glut. The United States Natural Gas ETF ( UNG ) was up Monday, as was gas provider Encana ( ECA ) . "The crisis could create the political winds for natural gas to become a big theme," for investors, says Dailey.
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