Investment in Energy Stocks
Energy stocks are often seen as a reliable long-term investment since the demand for power seems to be ever-present. They typically experience cycles of highs and lows that span several years, but over the long haul, they generally tend to appreciate in value and outpace inflation.
While the S&P 500 is near its historical highs and looks a bit pricey at 29x P/E, it might still be a favorable moment to begin investing in some promising energy stocks. Two noteworthy options are GE Vernova (NYSE:GEV) and Cameco (NYSE:CCJ).
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GE Vernova, which was previously the Energy Division of G.E. (NYSE:GE), became an independent company in 2024. The company focuses on three primary areas: electric power, electrification, and wind energy. The electric power segment includes products like gas and steam turbines for various types of plants, while electrification involves transformers and systems for optimizing power grids. Lastly, the wind sector deals primarily with onshore and offshore wind turbines.
The power sector is expected to make up over half of the company’s orders by 2025, with substantial growth seen recently. This expansion has been fueled by the surging demand from cloud services, data centers, and AI technologies. The electrification segment, accounting for nearly one-third of orders, has also shown rapid growth. However, the wind sector is facing delays and supply chain issues, which have impacted its performance.
Analysts anticipate that GE Vernova’s revenue and adjusted EBITDA will increase at compound annual growth rates (CAGRs) of 15% and 54%, respectively, from 2025 to 2028. The company aims to strengthen its power and electrification sectors while addressing challenges in its wind business. With a market capitalization of $206.5 billion and a growth rate of 36x adjusted EBITDA, it seems like a sensible way to tap into the increasing energy demand from large data centers.
Cameco, based in Canada, is the world’s second-largest uranium mining company after Kazakhstan’s Kazatom Prom (OTC:NATK.Y). It operates mines across Canada, the U.S., and Kazakhstan, projected to supply 17% of global uranium by 2024.
From 2011 to 2021, Cameco’s annual revenue dropped from $2.4 billion to $1.5 billion as many countries paused their nuclear expansion following the Fukushima disaster. The price of uranium also fell significantly, leading to the closure of Cameco’s largest mine. However, from 2021 to 2024, revenue surged again to $3.1 billion as the demand rebounded due to the growth in cloud and AI markets, along with a revival of nuclear projects in various countries.
Currently, uranium prices hover around $94 per pound, and they could continue to rise unless unforeseen events upset the market. To diversify its operations, Cameco is reducing its dependence on mining. In 2021, it increased its stake in a uranium enrichment venture with Global Laser Enrichment from 24% to 49%. More recently, in 2023, it acquired a 49% interest in Westinghouse Electric, a significant player in nuclear power plant design and construction. These moves will likely contribute to a more diversified portfolio.
Analysts project that Cameco’s revenue and adjusted EBITDA will grow at a CAGR of 7% and 14%, respectively, from 2025 to 2028. While its valuation appears somewhat elevated at 36 times this year’s adjusted EBITDA, the company’s strong connection to the rapidly expanding uranium market justifies this figure.
Before considering an investment in GE Vernova, keep a few things in mind.
There are other investment opportunities that some analysts find more worthwhile. For instance, a recent list identified the Best 10 Stocks that could offer significant returns in the coming years, without including GE Vernova among them.
Interestingly, some past recommendations—like Netflix and Nvidia—have seen astronomical growth, with returns on investments made years ago climbing to over $400,000 and $1 million, respectively.
This highlights the potential that savvy stock picking can have over time. Just remember that the average return for one advisor group’s other picks was around 884%, significantly outpacing the S&P 500’s 193% return.
As always, it’s essential to stay informed and make thoughtful decisions when investing in the stock market.
