After expending a great deal of political capital on health reform, many expected the Obama administration to push off energy and climate legislation into next year. But with the pool of oil growing in the Gulf of Mexico by the day, President Obama has moved his energy legislation agenda back on to the front burner, calling on Congress to work with him to bolster America’s consumption of alternative forms of energy.

Although wind and solar have garnered much of the attention, it may now be time to start focusing on nuclear power opportunities. Plans are afoot to green light a few new plants this year, and during the next few years, we may see applications for dozens more new plants. Internationally, the nuclear renaissance has already begun.

Uranium: unfavorable economics

At first glance, it would seem logical to buy stocks of the uranium mining companies. After all, the United States’ existing stock of 104 reactors burn through 55 million pounds of uranium each year.  But there is an ample supply out there in places like Kazakhstan, and Latin America, as well as here in the United States. It would take dozens of new reactors to come on line for uranium demand to exceed supply. To be sure, uranium can be swept up in a bubble: The radioactive material fetched $120 a pound in 2007 as expectations grew that many new nuclear plants would soon be authorized around the world. That never came to pass, and uranium now trades for about $40 a pound.

The Obama administration has already offered $8 billion in loan guarantees — enough to backstop two new plants. And they’d like Congress to authorize another $46 billion to get other nuclear plants off the ground. (Some of that money might go to a new breed of mini-reactors, which also use uranium, so the net effect on demand is a wash). If Congress agrees to that plan, then uranium prices could temporarily spike. That would be good news for small processors such as Uranium Energy Corp. (AMEX: UEC), which owns several mines in the Western U.S.

But most investors focus on Cameco (NYSE: CCJ), the industry’s largest player. Cameco, which has mines in Canada, the U.S., Kazakhstan and Australia, also sports the lowest costs in its industry.

Weak prices for uranium have been a real positive at times, as they have flushed out smaller, less-efficient players, enabling Cameco to boost market share. Shares of Cameco have fallen about -25% this year, and no longer trade at a premium to the value of the unmined uranium it controls. Shares have likely found a floor here, and would post a rebound if President Obama’s legislative plans are advanced, and uranium prices rise from current levels. (The share price weakness mirrors a fall in uranium, which has also steadily fallen since the start of the year).

A shortage of processors

If new plants get the green light, and demand for uranium rises, then we’ll soon see a bottleneck in efforts to convert mined uranium into a usable fuel for power plants. That’s why USEC, Inc. (NYSE: USU) recently secured a $200 million investment to boost its uranium processing capabilities. As we noted here, USEC is not well-known on the Street, but is highly profitable and poised for solid growth if new plant construction begins.

What about the builders?

Nuclear power plants take billions of dollars to construct. All that money that the Obama administration hopes to secure will go right to the companies that can build these massive complexes. Trouble is, most of these builders are privately-held, or trade on foreign stock exchanges. Some investors see Shaw Group (Nasdaq: SHAW) as a clear beneficiary, but know that Shaw also constructs traditional power plants as well, so nuclear-related revenue will never dominate Shaw’s sales mix.
 
Safety First

As nuclear plants get built, we’ll need engineers to operate them. Many nuclear engineers are nearing retirement age, so we’ll need to train a whole new group of staffers to handle the complex controls. That should be a boon for micro-cap GSE Systems (AMEX: GVP), which builds training simulators for power plant operators. In recent quarters, the company has seen demand for nuclear simulators grow — especially in China and South Korea, where nuclear power is already on the upswing. Sales are on track to rise at least +20% both this year and next, thanks to a fast-rising backlog.

Action to Take –> Cameco is clearly the biggest and clearest way to play any rise in demand for uranium, but uranium processors such as USEC or nuclear training firms such as GSE Systems may be the real pure play here.