The utilities sector, represented by the Utilities Select Sector SPDR ETF (NYSE: XLU), has been experiencing turbulence, pulling back nearly 7% from its 52-week high since the start of December. This decline marks a sharp reversal from its prior outperformance, as capital flows have rotated out of the sector. Over the past three months, the XLU ETF reported net outflows of 6.28%, signaling a shift in investor sentiment.
Previously, the utilities sector benefitted from tailwinds like Federal Reserve rate cuts and rising energy demand fueled by the growing adoption of electric vehicles. However, the resurgence of nuclear energy played an outsized role in the sector's recent momentum. With increasing demand projected from artificial intelligence (AI) and data centers, nuclear energy has been positioned as a critical component of the future of clean energy, drawing substantial investor interest.
Amid this wave of enthusiasm, several nuclear-focused stocks soared to impressive heights. One standout, Vistra Corp (NYSE: VST), emerged as the top-performing S&P 500 stock by November. However, following a recent pullback, VST has ceded its position to Palantir Technologies (NYSE: PLTR). With Vistra and other key players retreating alongside the broader sector, could this dip present an opportunity to gain exposure to nuclear energy stocks? Let’s dive into the details.
Vistra Corp: A Clear Industry Leader
Despite a 14% retreat from its 52-week high, Vistra remains one of the best-performing S&P 500 stocks year-to-date, boasting a remarkable 276% gain. The company is uniquely positioned to capitalize on AI-driven electricity demands, operating 41,000 megawatts (MW) of generation capacity, including 6,400 MW of nuclear power. It also holds the second-largest energy storage capacity in the U.S., a critical asset for balancing energy supply and demand in the AI era.
Financially, Vistra appears attractively valued after its pullback. The stock trades at a price-to-earnings (P/E) ratio of 27.4 and a forward P/E of 20.8, approaching benchmarks that could signify a bargain for value investors. Its price-to-sales (P/S) ratio stands at 3.2, with projected earnings-per-share (EPS) growth of nearly 40% in 2024.
Recent earnings, reported in November, showed a 25% revenue estimate beat to $6.28 billion, although EPS narrowly missed analyst estimates by 3%. Sales have increased year-over-year by 53.9% in the last reported quarter and 54% in the third quarter of 2024. Notably, the company’s cash flow growth of 261% far exceeds the industry average of 6.3%. Historically, its annualized cash flow growth rate of 17.8% over the past 3–5 years surpasses the sector’s average of 6.1%.
From a technical perspective, Vistra’s stock is approaching critical support near $140, coinciding with its rising 50-day simple moving average (SMA). This level could serve as a favorable risk-to-reward entry point for investors. However, if this support breaks amid continued sector weakness, the next significant level lies near $120. Analysts remain bullish on the stock, with all ten Wall Street analysts covering it issuing a Buy rating. The consensus price target suggests a modest 3% upside from current levels, reflecting confidence in the company’s potential even after its stellar 2024 performance.
Speculative Bets on Nuclear Innovation
While Vistra offers stability and proven growth, smaller nuclear energy stocks have drawn attention for their groundbreaking innovations and speculative appeal.
Companies like NuScale Power Corporation (NYSE: SMR), Oklo Inc. (NYSE: OKLO), and Nano Nuclear Energy Inc. (NASDAQ: NNE) are pushing the boundaries of nuclear technology.
NuScale leads in advanced small modular reactors (SMRs), offering a compact, scalable alternative to traditional reactors.
Oklo focuses on fast fission reactors for clean energy, while Nano Nuclear specializes in microreactor technologies, including the ZEUS solid-core battery reactor.
These mid-cap companies are largely pre-revenue and heavily reliant on raising additional capital to meet operational goals.
As a result, their stock prices are significantly more volatile than established players like Vistra.
All three have pulled back over 30% from their recent highs, reflecting the risks associated with their speculative nature.
These stocks could be appealing for investors willing to embrace higher risk in exchange for potentially outsized rewards. However, they require a long-term horizon and a strong tolerance for volatility.
