Got Nuclear? Three Stocks To Play Energy's Next Frontier

Key Points

• As the world realizes that the future of energy will need to rely more and more on the advanced propositions made by nuclear power, investors would benefit greatly from considering an investment in space.
• These are the three most prominent U.S. energy firms exposed to the future investment waves that will populate everything nuclear. 
• It is a tale of growth and smart strategic investments at a discount, and you want to take advantage of it.

By now, it should be no secret that the global energy industry is beginning to break into the next frontier, which undoubtedly needs to be in a different direction than solely fossil fuels.

The market hype is following developments in the high-flying names surrounding solar energy and electric cars; however, there is one massive trend that people need to discuss.

Nuclear energy is an underrated and highly profitable space in the industry that most countries are looking to develop to claim their place under the development sun. The competitive juices are flowing now that China is openly investing and developing the technology necessary to create this reality.

Today, the homework has been done for investors to review the three most promising U.S. names involved in nuclear energy development. As Warren Buffett says, "Never bet against America".

Constellation Energy 

Shares of Constellation Energy NASDAQ: CEG have been on a complete tear this year, rising by as much as 34.1% year-to-date, a performance that has left the S&P 500 behind by a whopping 18%. What could have caused this 'boring' energy behemoth to explode the way it did?

The word 'nuclear' was used thirty-four times within the latest quarterly results presentation, emphasizing that Constellation owns and operates the best-in-class nuclear infrastructure in the United States.

This positioning by the company would easily place it at the top of the investment wave once the energy alternative becomes more mainstream than it currently is.

It appears management is also getting ahead of the curb, expanding the company's resources beyond in-house capabilities. Constellation bought a new stake in a Texas nuclear power plant for a $1.75 billion price tag. 

Considering that Constellation already has its hands on 13 additional powerplants across the U.S., the latest acquisition could be a sign of a new norm strategy. Despite seeing this play happen before, shares of Constellation still rose by about 4.7% after management announced the new purchase.

Management has raised its financial outlook for the remainder of 2023, as its goal is to provide 100% carbon-free energy by the year 2040. Analysts have noticed, as their models suggest, a 14.4% jump in earnings per share for the next twelve months.

With more acquisitions probably underway, now that Moody's and S&P upgraded Constellation's balance sheet to 'positive outlook,' the recent all-time highs in the stock price may be exchanged for even higher highs.

NextEra Energy 

Offering an even more significant discount for investors, shares of NextEra Energy NYSE: NEE have retraced by as much as 26% from their all-time high prices of $93.73 a couple of years ago. Here is why a value play can be built from this.

Wall Street considers any decline of - or more than - 20% to be an official 'bear market,' so in the case of NextEra, investors can assume they are picking up shares overwhelmed by bearish sentiment. Though is it time to go shopping yet?

Analysts are hinting at the possibility of today being good timing for a potential purchase in the stock, as their consensus price targets land on $87.9 a share. The stock would need to rise by a net 28.1% from today's prices to make these predictions a reality.

The company's financials will reflect that ROE (return on equity), one of the main things a value investor like Warren Buffett looks for in a potential deal, has jumped from 6.8% to 14.5% in the past twelve months. Management deserves a golf clap for this one.

According to the latest quarterly presentation, the jump in profitability stems from an annual jump of 14% in adjusted earnings. Management points to the contributions from new investments as the reason behind these advances.

Betting on these new nuclear projects becoming a large part of the EPS drivers in the business could take a while. However, investors can enjoy an annual dividend yield of 2.7%, the highest since 2018.

Dominion Energy 

A $1.2 billion investment into the first phase of a nuclear program kicks off the momentum for Dominion Energy NYSE: D. This stock will easily categorize itself as the most 'beat up' in this group, declining by 46% from its recent highs of $90 a share.

Deep into bearish territory, management is looking for all the right ways to turn this ship around. Offering shareholders an annualized dividend yield of 5.5% is an excellent place to start, compensating for the current volatility with a decent rate of income.

Analysts are facing these significant discounts, predicting a price target of $55.1 a share, requiring this stock to jump by 13.8% to meet it. The renewed sentiment could come from a massive turnaround in the bottom-line throughout the past twelve months.

Dominion reported a net loss per share of $0.58 a year ago. At the same time, today, it showcases an improvement toward a net gain of $0.67. The jump can be broken down into a very simple dynamic change.

Revenues increased by 5.5% during the year, a significant achievement for a big company ($40 billion market capitalization). All the while, operating expenses contracted by 21.5%. Management's investment decisions are paying off big time.