Top Trump Trade

Deregulation is at the core of the Trump Trade. Remove various restrictions on how companies do business and it’s a decent bet that they can make more money.

This isn’t always a good thing. Recall that lax regulation was part of the reason that banks were allowed to leverage up on mortgage-backed securities leading to the Great Financial Crisis and massive taxpayer-funded bailouts.

But if you want to know why the U.S. economy and stock market run circles around Europe’s, it comes down to EU regulations stifling growth.

So, it’s no surprise that banks have been big winners over the past few weeks. Bank of America has run from $41.80 to $47.50 and JP Morgan from $220 to $250 on the expectation that a more business-friendly SEC and Commerce Department will mean more M&As and IPOs.

A more crypto-friendly SEC (plus the potential of a U.S. Bitcoin Reserve) is a big reason Bitcoin has nearly broken over $100,000.

Still, the biggest beneficiaries of deregulation will be nuclear stocks – especially the small upstart nuclear companies that are disrupting the traditional utility-scale nuclear power plant model.

Warp Speed for Nuclear

Southern Company’s (NYSE: SO) Vogtle 1 & 2 were the last utility-scale reactors built in the U.S. Approved in 2009, they took 15 years to build and cost $35 billion — twice as long and twice as expensive as initial estimates.

It is obvious that small modular reactors designed by companies like NuScale (NYSE: SMR), Oklo (NASDAQ: OKLO), Terrapower and Kairos are attractive because they can be built much faster and much more cheaply.

But despite the overwhelming support for the Atomic Energy Advancement Act passed back in March, so far all we have is the “Nuclear Power Project Management and Delivery” working group and approval for a few test sites to be built. Only one small modular reactor design has been approved — NuScale’s…

And even then, the Nuclear Regulatory Commission’s archaic bureaucracy demanded changes to the design that upended the cost so much that the initial deployment plan had to be scrapped.

So maybe – and I’m just spitballing here – the Trump Administration will get some kind of Project Warp Speed going for nuclear as it did with vaccines during Covid. Because if AI data centers electricity demands really do jump from 4% of US electricity production today to 25% over the next 5 years, the current pace of progress is not going to cut it.

Today’s Nuclear Stock Opportunity

Today, a nuclear company we’ve talked about before is getting crushed. Shares of Nano Nuclear (NASDAQ: NNE) are down 26% to $24.75.

The stock had run from $14 when we discussed it here on September 13 to $33.50 as of last Friday’s close.

Now, a 26% drop in one day sounds bad. That’s the kind of move you get when a company’s CFO quits unexpectedly or something explodes.

But that’s not what happened. Nano Nuclear announced a secondary offering of 2.5 million shares of stock to be sold at $24, along with warrants for another 2.5 million shares, to be purchased at $26.

The unspoken rule on secondary offerings of stock is that the share price will likely trade down to the offer price (in this case $24) and will then rally after the offering is complete (in this case, the 27th).

The reason a stock tends to rally after a secondary is that 1: the company has just raised money to fund its business without taking on debt, and 2: those that buy a secondary are thought of as “strong hands.” They see upside for the stock and are happy to own a big chunk. Sometimes secondary buyers are required to hold the stock for a period of time before they sell (though it’s not clear if that’s the case here).

NuScale and Oklo are both lower today, in sympathy with Nano Nuclear. But the reality is that they are pretty well funded. After this secondary, Nano Nuclear will have $120 million in cash and $2 million in debt. NuScale has $154 million in net cash and Oklo is the big dog with $235 million in cash.

Today’s drop for all these stocks give you a chance to buy the dip.

Cheers,

Briton Ryle
Chief Investment Strategist
Outsider Club

X/Twitter: https://twitter.com/BritonRyle

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