Tuesday’s ETF To Watch: Nuclear Energy Fund (NUCL)

by on November 9, 2010 | ETFs Mentioned:

Companies tied to the nuclear power industry were in focus for much of Monday’s trading session, as an upbeat earnings report from bellwether uranium miner Cameco (CCJ) helped to boost the fortunes of the sector and send shares of the Canadian company higher by more than 7% on the day. The company posted EPS of just 20 Canadian cents a share, which represents a four cent decline from the same period a year ago. Revenues were also down at the mining giant–off by close to 24%–but the company managed to rally on hopes of solid uranium sales to close out the year and robust demand despite price increases for the element. “The uranium spot price has increased 10.6 percent to $57.50 per pound over the weekend,” said Macquarie analyst Duncan McKeen, in a note to clients. “This significant increase follows a number of weeks of upward movement to the spot price.”

Not surprisingly, this news helped to boost a number of other smaller miners and helped to put a variety of auxiliary firms, such as those that engage in power plant construction, into focus. One company that looks to be under the spotlight given the surge in uranium demand and prices is Houston-based McDermott International (MDR). The company manufactures and supplies critical nuclear components, fuels, and assemblies for government and commercial uses, as well as provides various services, including uranium processing, environmental site restoration services, and management and operating services for various U.S. Government-owned facilities primarily within the nuclear weapons complex of the U.S. Department of Energy. McDermott also supplies research reactor fuel elements for both universities and national laboratories and converts high-enriched uranium into low-enriched fuel for use in commercial reactors to generate electricity. With the uranium industry in focus, and with an earnings report coming out after the bell on Monday, MDR was bound to be active to start off the week [also see Global X Launches Uranium ETF].

The company released its third-quarter profits after the bell yesterday, reporting an EPS of just nine cents a share, down from 50 cents a share in the same period a year ago. Sales also plummeted as the company posted revenues of just $732.1 million, down from just over one billion in the third quarter last year. These figures represent a huge discount from analyst predictions, which came in at 28 cents a share in earnings on sales of $886.1 million. Nevertheless, the markets shrugged off these disappointing figures and sent shares of the engineering and construction firm up by close to 2% in after hours trading.

These gains likely came thanks to the upbeat nature of CCJ’s report as well as some positive comments from McDermott’s CEO. “McDermott’s operating performance in the third quarter of 2010 was outstanding, although somewhat muted by the non-cash impairment charges. New awards during the three month period ended September 30, 2010 were light. However, we are pleased to report that in the month of October 2010, McDermott recognized bookings of approximately $1.2 billion. As such, we believe the market we serve continues to be robust and that the outlook for our business remains strong, particularly in the Middle East and Asia Pacific segments,” said President and CEO Stephen M. Johnson, suggesting that although the company may have endured an underwelming quarter, the outlook heading into next year is bright as numerous countries build up nuclear power operations and demand for nuclear power continues to surge higher [also read Nuclear Power ETFs: Ready To Surge?].

Thanks to this crucial earnings report and the general buzz in the uranium mining industry, look for the iShares S&P Global Nuclear Energy Index Fund (NUCL)–which allocates 8.6% of its assets to MDR–to be active in Tuesday trading. In addition to its top weighting to McDermott, the fund also gives sizable allocations to Amec Plc (8.4%) and miner Cameco (8.4%). The fund holds 25 securities in total and allocates just one-third of its total assets to American companies, with good portions of the international exposure going towards Japan, Canada, and the UK. So far in 2010, NUCL has underperformed the overall market, gaining just 2.7% year-to-date. However, over the past quarter the fund is up 11.4%, suggesting that fortunes may be turning around for the fund. If yesterday’s earnings report by MDR is able to carry the momentum from the positive outlook from Cameco, it could be another solid day for the nuclear power and construction sector [see The Definitive Guide To Clean Energy ETFs].

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Disclosure: No positions at time of writing.