Nadig predicts a “boom era” for uranium supplies as tax cuts and subsidies in various countries accommodate a shift to nuclear energy. He takes a closer look at the VanEck Uranium+Nuclear Energy ETF (NLR).
“Nuclear is increasingly looking like the solution," Nadig insists, who sees various industries relying on nuclear energy, specifically in the areas that require computing power such as electric vehicles and AI systems.
"It's going to be another year or two at least before demand catches up to the over-supply," Nadig says on slowing growth for the broader energy market and the XLE
And, Dave, your buy pick has nothing to do with oil at all, at least not directly. But it does have a lot to do with the future of energy. I'm talking about uranium here. And specifically, you're looking at the VanEck Uranium and Nuclear Energy ETF. NLR is the ticker for that. So let's run through your bull case on uranium here.
You get tax cuts on the capital. You do subsidies on the distribution. That's going to start happening in the United States. It's happening all around the world. We've got 60 reactors being built around the world, 100 more have been permitted. It's really going to be a boom era for modern generation for nuclear reactors.
JULIE HYMAN: Interesting. And then there's also the idea that we are going to see more demand for power generally. And in your thesis, more of it's going to be coming from nuclear.
DAVE NADIG: Yeah. What we know is that electricity demand in specific is going to be where the big demand crunches are. In the developed markets, that's going to be for electric vehicles. Obviously, it's going to be for increased compute power for AI. But it's also in the emerging markets. We're seeing them skip some of the petroleum ladder if they can. If they can get access to cheaper nuclear energy, they can avoid having to necessarily build a coal plant that they might not otherwise.
So nuclear is increasingly looking like the solution, not just in the developed markets, but in the emerging markets as well.
JULIE HYMAN: Yeah. And here's the global electricity production by source here. And what's interesting here is the bottom line is coal. And coal hasn't quite gone down, but it's definitely going sideways here. Nuclear here is this line right here, this one.
DAVE NADIG: Yeah, exactly. And it's stayed relatively stable as a percentage of the mix. This is actually sort of the growth stacked up. So the gap in between here is the nuclear component. That's been about 10% of global energy production. And it's been stuck there for about 30 years. That's just starting to change. That's why this is so exciting.
JULIE HYMAN: OK, gotcha. And then thirdly, you're looking at the global sort of attitude, political attitude, towards the alternatives to nuclear, that is older sources of power like oil and gas.
DAVE NADIG: We are in the middle of a boom of energy production here in the United States. That's worth saying. But what that means is prices are going to stay flat and they're going to stay stable. This is not a time to be leaning into that market. Nuclear, I think, is going to have a bit of a resurgence because it is sort of a bridge technology towards a zero-carbon future.
JULIE HYMAN: Interesting. OK, now we always like to talk about what's the risk to this bullish thesis. And in this case, it's expensive to build these things.
DAVE NADIG: It's expensive and also NIMBY is real. People really do fear nuclear in a way ever since the '70s that they have not feared other technologies, even though those fears are completely unfounded by the science and our experience with nuclear energy to date. So I think that's shifting. I think we have a younger generation that is more interested in solving the long-term problems. And there's no question, nuclear is part of it, but never underestimate the ability of people to show up at a town meeting and say no to something.
JULIE HYMAN: Yeah. I mean, I have a quick sidebar question for you as well, because here we're looking at uranium, the fuel that is used in nuclear plants. Are you also bullish on, say, the plant operators, the plant constructors, et cetera?
DAVE NADIG: Absolutely. And that's what this fund holds. This is uranium mining-- this is from VanEck. VanEck is really known for doing that equities in hard assets trade. They do that in gold. They do that in other precious metals. In this case, it's uranium miners, but it's also the power companies that are getting the majority of their revenue from nuclear. It's the technology companies that are starting to build things like fusion plants. So this is investing in the next generation of technology and the next generation of energy.
JULIE HYMAN: The whole suite, OK. So that's your good buy. Now let's talk about your goodbye, the one that you would suggest avoiding. And that's a traditional XLE, that is the SPDR fund that tracks the energy stocks within the oil and gas stocks, specifically in the S&P 500. So let's run through your case here.
First of all, there is this assumption that when oil goes up, these companies go.
DAVE NADIG: It's got to be good for Exxon, right? We always think that. It tends not to actually work out that way, because, remember, while Exxon produces a lot of oil and sells it to other people, they also consume a lot of oil themselves, because most of the majors are now completely vertically integrated. Everything from getting the drill in the ground to delivering the last drop of gas, they're in that ecosystem somewhere.
And it's not the case that short-term spikes in volatility in the price of oil are good for them. Long term, of course, if oil was going to grind up to $200, there would be lots of opportunity for some excess profits. But when we have an event like we've had over the last few months in the Middle East, when we have the kind of disruptions we've seen in South America, those things aren't good for anybody.
JULIE HYMAN: Let's talk about one of the other things that you're talking about, and that's territorial border disputes both in the US and around the world.
DAVE NADIG: Yes. So the big one here is Venezuela and Guyana, right? Some of the most interesting and exciting reserves that have been discovered in my lifetime are on the coast between those two countries. They've been arguing about who owns that since the 1800s. And they still haven't decided. There's literally a British warship sitting in that zone right now and 5,000 Venezuelan troops sitting on the coastline staring at that ship.
It's not getting as much press as it probably should here in the United States, but this is a real hot situation. The Exxon is right in the middle of it. Exxon is the one that is actually doing the work in these newly discovered fields. And they're getting-- one side is telling them that they have to leave within three months, and the other one is saying sign a new contract with us. I think most investors don't want to have anything to do with that.
JULIE HYMAN: Yeah. No, it's definitely a tricky situation. Let's also talk about what the companies themselves are saying about the growth that they're expecting.
DAVE NADIG: Yeah. And we've just come out of that guidance season. And you take somebody like an Exxon, the big fish in this pond, they're the ones saying that they suspect that we're going to remain oversupplied in global oil for the foreseeable future. Now we have got a little bit of a roll off on the growth in the US. Fracking rates are going to come down a little bit. But that's not like a contraction, it's just the growth is slowing a little bit.
It's going to be another year or two at least before demand catches up to the oversupply. All the majors know this. They've cleaned up their balance sheets. None of these stocks look like they're about to explode. But it's really hard to make a strong growth case.
JULIE HYMAN: All right. Let's talk about what could go right perhaps for these companies. And here, too, you're looking at geopolitics, right? If we see what's happening in the Middle East, if we see some more serious threats to supply there, then maybe a spike in oil prices.
DAVE NADIG: And, you know, certainly, I'm not hoping for any of these things. But we have seen that, a sustained issue. We saw this during the Iraqi war, right? We know that a sustained geopolitical conflict will drive oil prices higher for a longer period of time. And in that case, you might see some of the supermajors really ramp underneath that.
I don't see that in the cards right now, but that is probably the number one risk here. Oil spiked to $120, sits there for a year. This trade is completely off.
JULIE HYMAN: The other thing I would ask is one of the reasons that people consistently hold energy companies is the dividend, right, that they pay these pretty significant yields. So does that suggest that the very least there's a floor under some of these energy--
DAVE NADIG: Absolutely. I mean, these are enormous parts of the American economy. I think of them now as sort of the new industrials, right? They are-- they're the widows and orphans stocks that people use to generate that really reliable income stream. But that's the way they're running their businesses now. So you should expect the kind of performance you get out of a big stodgy industrial with a 3% dividend. You shouldn't be expecting big swings in response to global politics that are always in your favor.
JULIE HYMAN: Gotcha. All right. Well, let's sum up what you have told people here today. You're telling investors buy if we're looking at the VanEck Uranium plus Nuclear Energy ETF here and avoid the Energy Select SPDR fund in part because you see the growth prospects for the nuclear business and the sort of non-growth of what's going on in oil and gas. Just quickly any positions either way on these guys?
DAVE NADIG: Not many of them, except I'd point out, if you own the S&P 500, you've already got 6% energy exposure whether you wanted it or not.
JULIE HYMAN: Yes, that is indeed true. Thanks so much for joining us on "Good Buy or Goodbye." You can join us three times a week at 3:30 PM for more on this. And Dave, you're going to stick around because there is an ETF topic that we want to bend your ear on. So stay with us. We'll be right back.
