Grabbing A Piece Of The Nuclear Action

During a recent test at an experimental nuclear reactor in China, engineers did their best to create a disaster. They cut off the flow of the coolant that removes heat from the nuclear reaction, then withdrew the control rods. That's a recipe for a meltdown in today's plants. But this reactor quickly shut down on its own with zero damage. "It was unbelievable," says Massachusetts Institute of Technology nuclear engineer Andrew C. Kadak, who witnessed the demonstration. "It is why I have such confidence in this technology."

The dramatic test is just one sign of the rising prospects of once-despised nuclear power. Both China and South Africa plan to build a group of advanced power plants, and other countries are seeing nukes as a way to insulate themselves from rising natural gas and coal prices -- and to meet new curbs on carbon dioxide emissions. In the U.S., public support is the strongest in years. And utilities and nuke builders plan to spend hundreds of millions on the design and engineering work needed to get approval for a new generation of plants.

One of the few nuclear pure plays for investors is Bethesda (Md.)-based USEC Inc. (USU ), the world's leading supplier of enriched uranium fuel for commercial nuclear power plants. The $1.4 billion company operates the only enrichment facility in the U.S., in Paducah, Ky. It's now building a demonstration plant for new enrichment technology in Piketon, Ohio, which is set to begin operations in 2005.

The U.S. has 103 nuclear plants. Investing in some of the utilities that run them, such as Exelon (EXC ), Entergy (ETR ), and Dominion Resources (D ), is one way of playing the nuke trend, says David M. Schanzer, analyst at Janney Montgomery Scott. "If you believe nuclear power is a path to the future, we think these companies make perfect sense," he says. Following the big runup in energy stocks, these companies are "fully valued," he says. But over the long term, he expects them to outperform others in the industry.

Another way to get a piece of the nuclear action is to invest in the big companies that would design and build plants. Two are General Electric Co. (GE ) and Westinghouse Electric Co., now a subsidiary of British Nuclear Fuels PLC.

Certainly, there are plenty of risks. There's a long road before any new U.S. plants go online, even if the industry resolves its most vexing problem: how to store the waste that plants generate. But if the favorable climate for nukes continues, the industry believes it could add 30 to 50 plants by 2020, at a total cost of $50 billion to $125 billion. With such growth, going nuclear could pay off.

By John Carey in Washington

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