A Nuclear Stock to Consider Even After Rallying 200%

Those who have been reading my contributions here for a while will know that I am not really a momentum guy. By training and nature, I am more of a contrarian. I like to look for bargains and hate the idea of buying something that has already risen significantly. In that case, the value has usually gone completely, and I would hate to be the last one in, who buys at the top. There are times, though, when a stock that has been flying upwards has done so for a reason, and that reason suggests that there is further to go in the move.

That is the case with NuScale Power Corporation (SMR).

SMR has risen close to 200% in the last three months. That would usually be a disqualifier for me. In fact, it would be a sell signal, making the stock something I might look to short. In this case, though, there are reasons why I think this may be just the beginning.

The company makes what are essentially small-scale nuclear reactors that produce power for specific uses. That is a fascinating business, promising its customers some degree of independence from the grid, which is something that is increasingly attractive as awareness of vulnerability to a cyber attack and other potential issues increases. It is, though, capital intensive, but the big move has been spurred by some news that alleviates that situation somewhat. The US Government recently announced that it is investing $900 million in nuclear power, and specifically the modular reactors that are NuScale's business, in an effort to broaden the scope of federal investment in alternative energy, an investment that has, until now, been focused on solar and wind power.

Let's be clear about one thing here. SMR is - federal money notwithstanding - a very risky play, particularly at these lofty levels. They have yet to prove the worth of their reactors in an industrial setting and are losing money consistently. That means that anyone who buys the stock will have to stay alert and should definitely set a stop loss level with which they are comfortable should the momentum fade and turn.

That said, though, there is one reason other than government funding to believe that NuScale can survive long enough to prove the worth of their reactors and start to see increased revenue. The majority owner of NuScale is Fluor Enterprises, a company that had global revenue of over $15 billion in 2023. They have already invested over $600 million in the company since 2011, which is no guarantee that they will invest more, but it would seem to make no sense to pull the plug now that revenue positivity looks to be so close.

As I said, the risk involved makes this a trade that requires structure. At the time of writing, SMR is trading at around $11 after some profit-taking. That looks like a decent entry point on the chart, with a stop set just below the $8 level that was the launching point for the most recent surge. On the upside, I would be looking for a move to around $20, at which point I would take some profit and reset the stop to lock in an overall profit on the trade.

With a downside of around 30% and a record of extreme volatility in the stock, this is not one for the faint of heart. But it is the kind of "moonshot" trade that, if it works out, could result in a massive upside. That makes it attractive to those with a high-risk tolerance who can afford to take a hit if things don't go as planned, and I am lucky enough to fit that description. If you are too, a small investment in SMR may be something to consider.