USEC: The Nuclear Call Option (USU)

This weekend we made new updates to our favorite list of stocks in the under $10 category.  USEC Inc. (NYSE: USU) is currently our favorite stock under $10.00 in the alternative energy category.  Is it fair to put a uranium enrichment supplier in the alternative energy universe?  That depends on what side of the aisle you are on and how far you extend energy.  This stock has been beaten, and there are many factors that have led us to believe that the stock has been trying to find a bottom.

This stock has risen and fallen from when we first started alerts onthis one as our new top pick in the weekly Under $10 Stocks newsletter,but it has held up unbelievably well when you consider the carnage seenin oil, coal, solar, and other energy stocks.  Monday took another chunk out of its hide, but this stock is well above its 52-week lowswhen so many other key stocks are violating those thresholds.  Thisstock was also north of $20.00 in May 2007 when the sector was on fire.

Despite it being a nuclear play, we view this stock essentially being anet-neutral based upon the 2008 election.  A McCain win wouldpotentially create many new power plant clients for the company.  AnObama win would not disrupt its current operations and there are stillseveral plants pending approval which may offer growth even if newapplications go stagnant.  We have also heard some hedging out of Obamaadvisors which might not make him as anti-nuclear power as it iscurrently believed.

This company is on track with its new centrifuge plant in Piketon,Ohio, and it gave a better time table than we were expecting.  While itgave forward choppy guidance with its last earnings that was actuallyfar better than we were expecting, its income and cash flow have beenmore stable than our base case in evaluating this company.  We havealso spoken with a spokesperson at the company in recent weeks andthere was no indication that anything new was hitting the shares otherthan the reaction to current market conditions and the treatment ofcommodity and energy stocks.

There are risks to this stock that do not exist for other companies.With it being in uranium, we won’t even bother going down that list of unique risks.But with the global growth in nuclear power among our existing tradingpartners and with the possibility of many new nuclear plants comingon-line in the coming years, this company has one massive embedded calloption which we think is not reflected in the current share prices.

We noted to our subscribers that this could even trade north of $10.00 nextyear under the right circumstances.  Even under the current slow andchoppy scenario, we think it has a lot room to grow regardless of theelection outcome.

Jon C. Ogg
September 30, 2008