We’ve published several updates of this article since Porter started his ‘secret energy grid’ pitch in early May of 2023.  The following has been updated and revised, though the “secret” stock remains the same.

Porter Stansberry knows at least one thing with absolute certainty: Using high-profile people and saying provocative things in your teaser ads gets attention, and attention is the goal of every marketer.

The first time around it was Barack Obama in the headlines, with subject lines like “Obama Leaked Classified Documents” and “Obama was a Royal Screw-Up”, and that’s likely to either make you want to argue with Porter, if you’re a fan of that former president, or pump your fist and say, “yeah, finally someone agrees with me!” … which means, of course, that half of the marketer’s job is already done. He’s got your attention.

We’ve also seen Elon Musk who gets the treatment, with emails that rehash JFK assassination theories and says that Musk’s promotion of this “secret energy” will make him a target:

“by openly advocating for a type of energy that the U.S. military says could have a ‘significant impact on the army, our allies, the international community, the commercial power industry, and the nation…’

“I believe Elon Musk has put a target on his back.

“And even though you may not know it, or even care…

“The coming war on Elon Musk is going to have a direct impact on you, your family, and your financial investments in the years to come.”

But the persistent headline about this “Secret Energy Grid” has been that it’s a result of “Reagan’s Final Premonition” and is “Reagan’s Greatest Gift to Americans.”

So what’s Porter pitching now? We’ve covered this before, and the spiel is similar this time, so some of what you’ll see here is an update of what I wrote when Porter started pitching the “Secret Energy Grid” back in May. Here’s the lead-in he used last time for this promo “documentary,” the meat of which was identical to this “War on Elon” pitch…

“Barack Obama was a royal screw-up.

“During his first year in office, he leaked the location of a secret energy grid in a memo to Congress.

“The list was exploited by WikiLeaks, whose founder now faces 175 years in prison for spying charges.

“However, thanks to one of my contacts, I’ve managed to obtain a copy of this leaked memo.

“It talks about a network of 93 energy facilities that have the ability to power our entire country with zero emissions.”

And, of course, the promise that there’s some wealth behind this “screw-up”…

“And what happened on February 21, 2023 that could make early investors in this secret energy grid billions of dollars in new wealth?

“I’ve produced a new documentary with all the details.”

And whaddya know, the actual “documentary” pulls in another revered/hated name from politics… here’s the headline once you click through:

“Reagan’s Final Premonition

“On February 21, 2023 his vision became a reality when the U.S government approved a new technology that could fuel our entire country with zero emissions…

“And one company has a virtual monopoly on its production”

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The ad starts as so many do, “this is one of the biggest, sure-thing investments of my 25-year career,” and it gets a bit long-winded… but here are some of the tidbits that we can chew on as “clues” in our search for Porter’s favorite new investment (he didn’t provide a transcript for this one, so I’m paraphrasing… but I think I’ve got the details right):

It’s all about a “secret energy grid” that’s poised to power every community in America, based on a technology that “for the first time ever” is about to become scalable.

And Porter says, with a straight face, that this “secret energy grid” is about to be extended by a new facility in Georgia, but that the “deep state” in the US is intentionally keeping it down because it will make electricity too cheap and will mean that we don’t need to drill for so much oil and gas. He says this “secret grid” is a direct threat to both green energy and fossil fuels, which is why the fat cats are keeping it down.

So there are 93 secret power facilities, and the technology is all our country needs to move away from fossil fuels forever… but “most people don’t know it exists.” The regulation and technological barriers are being lifted, and Porter cites that February 21 publication in the Federal Register as the point where that really picked up steam.

The Obama link is that Porter says that former president accidentally revealed the location of those 93 facilities in a memo to Congress, including the details about their operations.

I have no idea what the background of that story is, but what Porter is (still) talking about is nuclear power plants — there are 93 nuclear reactors in the United States, at 55 different locations (or there were at the end of 2021, at least, the number doesn’t change all that quickly).

And Porter says that both for strategic reasons and because of the embedded interests of the fossil fuel industry, everybody wants this technology to be secret… but with this new scalable nuclear technology, it won’t remain secret for long. The big money is moving in, with lots of new investments being made, and he thinks it will grow.

Diablo Canyon is the power plant that Porter highlighted in the first version of this presentation, as a key indicator of how important California is as a leader, and how reliant California is on Diablo Canyon, which he says is one of the great gifts Reagan gave America. Which I guess is partially true, Diablo Canyon was one of the many nuclear power plants authorized and under construction from the late 1960s through the 1970s, so it was really built under a series of presidents (LBJ, Nixon, Ford and Carter), but it was also a political hot potato for most of that time, and it only got its permanent operating license in the mid-1980s, under President Reagan (that timeline hasn’t changed much, incidentally, the one new large nuclear power plant just about to start operations in the US right now, in Georgia, has been in development and litigation for more than a decade, and the project is going online seven years late and $17 billion over budget).

As a facility that has been operating for about 40 years, Diablo Canyon is almost exactly “average” among American’s nuclear power plant fleet… and that fleet has been shrinking for about ten years, as the first wave of those 1960s plants have reached the end of their lives and been decommissioned (there have been only two new nuclear power plants authorized in the US over the last 30 years or so).

So what’s the new technology? It’s a nuclear reactor that Porter says can power 10,000 homes, but be built in 72 hours… and it’s got a guaranteed customer in the US military, and is the best way to get in on the ground floor of the “nuclear energy revolution.”

Well, no surprise, what Porter’s talking about are small nuclear reactors — what are usually called Small Modular Reactors, which look nothing like the giant cooling towers we imagine when we conjure up a nuclear plant like Three Mile Island or Homer Simpson’s workplace… here’s how Porter sums up the advantages:

Three of these SMRs are already in operation, and dozens are planned, we’re told… and Porter says that we’re on the verge of being able to provide nuclear power to anyone, anywhere, at any time.

So what’s the story? Porter said in his earlier ads that he’s specifically NOT telling us to rush out and buy NuScale Power (SMR), which is the most obvious “story” stock in the small nuclear reactor space and was the one that got approval for its reactor design on February 21. He thinks it’s not ready, because it doesn’t have enough money to really start building, and until they get the money we’re still many years away.

Which seemed to be the reasonable and cautious stance earlier this year, when SMR was being promoted by Nomi Prins and others, but is pretty well verified now — NuScale Power crashed last week because their first project was canceled because of rising costs… and another small modular reactor hopeful, X-Energy, was scheduled to go public through a SPAC merger (much like NuScale did a couple years ago), but that deal was canceled recently, too… a good reminder that even small nuclear reactors are complex and expensive and highly regulated and feared.

But what should we buy instead of the faltering NuScale? From Porter:

“I’ve found a far better way to capitalize on the emergence of small nuclear reactors in America. Another company is actually building one right now, in a government facility, another much smaller design that is called a micro-reactor.”

It’s not a 1,000% gain overnight situation, he calls it a “long term play on an emerging trend” — but it’s also the only way to cut emissions dramatically. And he likes that they have a guaranteed customer in the US military, which might want small reactors for far-flung basis to replace expensive diesel power plants.

That military interest is driving lots of companies who have been pushing forward microreactor designs… so which one is it that Porter likes, if it’s not Nuscale? We know that General Atomics, Oklo, Westinghouse, X-energy and others have designs that the military has been considering for the past five years.

And as an aside, the very fact that we’re mentioning the names of other companies here, and that Porter mentioned Nuscale power as a “not ready yet” investment in this space, means that it’s obviously an area of some competition… so we should take it with a grain of salt when Porter says that “One company has a monopoly on the future of nuclear energy in America” … even if he thinks the “monopoly” comes from the fact that one company has “secured” a pipeline of multi-billion-dollar contracts with the government, big pharmaceutical companies, and major utilities, strategically “locking in” revenues for the next 25 years.

So… curious? Me, too. “Locked in for 25 years” has a nice ring to it. So what’s our company? Here’s one final slide from Porter’s original presentation with a few more clues:

This is, Thinkolator sez, a more established nuclear power company that we’ve talked about a few times: BWX Technologies (BWXT)

BWXT is not a sexy or fast-moving company, it doesn’t have nosebleed revenue or earnings growth… but it does certainly have more experience than anyone else in building small nuclear reactors, since it’s essentially the monopoly provider of reactors for the nuclear navy. Porter thinks the company can go up fivefold from here, and that may well be true… but it’s not going to happen quickly. Both nuclear power and the military tend to move and change pretty slowly.

Here’s how the company describes itself:

“At BWX Technologies, Inc. (NYSE: BWXT), we are People Strong, Innovation Driven. Headquartered in Lynchburg, Virginia, BWXT is a Fortune 1000 and Defense News Top 100 manufacturing and engineering innovator that provides safe and effective nuclear solutions for global security, clean energy, environmental restoration, nuclear medicine and space exploration. With approximately 6,700 employees, BWXT has 14 major operating sites in the U.S., Canada and the U.K. In addition, BWXT joint ventures provide management and operations at more than a dozen U.S. Department of Energy and NASA facilities.”

They’ve now reported another quarter since Porter’s first pitch circulated, and it was well received, with no big surprises — they are effectively reaffirming their guidance for at least $2.4 billion in revenue and ~$2.90 in non-GAAP earnings per share in 2023, and analysts have tracked along with that guidance, which means that BWXT is trading at about 25X forward (adjusted) earnings right now, at about $76 (and analysts have gradually been raising their estimates, too, so it was also at 25X forward earnings a few months ago at $70). That’s not necessarily cheap for a slow-growth business, but BWXT has been a very steady business since they spun out their conventional power generation operations (Babcock & Wilcox (BW)) seven or eight years ago and became almost a pure play on reactor development and maintenance for the US Navy, and steadiness is valuable, particularly if you think they’ll also have a new growth engine, eventually, with these small modular reactors for military bases (and, perhaps someday further off in the future, for civilian uses). In the six months since Porter’s first “Secret Energy Grid” pitch ran, the stock has climbed ahead of the S&P 500, mostly because it didn’t fall under the pressure of rising interest rates from August to October… though it has certainly been much more volatile (that’s BWXT in purple, the S&P 500 in orange… I thew in NuScale Power in blue, just for some context):

The financials for BWXT look quite reasonable — they do carry some debt, as you might expect for an asset-intensive company that builds nuclear reactors and processes uranium, but it’s only about a billion dollars, and they’ve actually been adding on to that debt in recent years, in part to help them buy back shares, so it has also been a pretty steady cannibal — growing the business, but buying back its own shares to make each share more valuable. That’s slightly risky, using debt to buy back shares, but given the low cost of their debt (it’s costing them about 5% right now, and matures gradually over the next six or seven years), and the likelihood that they’ll be able to continue accessing relatively low-cost debt, given their long term government contracts, I do think we can use that word “slightly” with some confidence. They don’t have any meaningful debt maturities that I’m aware of until 2026, so it’s at least not an imminent risk.

Here’s the visual representation of their recent progress — this is the revenue (blue) and earnings per share (orange) for BWXT (purple) over the past five years, a chart that I pulled up for the first time in May of this year… and that colors the interpretation pretty significantly. Back in the Spring of 2018, BWXT was a popular and expensive stock, just coming off the surge following their Babcock and Wilcox spinout, so it looked like BWXT had dramatically underperformed the S&P 500 (in green) in that time… which means the business had grown, on a per-share basis, while the share price had pretty much stayed flat, and the valuation had gotten more reasonable:

But by choosing the timeframe of a chart, you can change the story — something we should all remember when looking at the hockey-stick charts that promoters so often use. If you go back five years from today, then your starting point is after BWXT stock crashed in late 2018 (it fell from the $70s to the low $40s), so here’s how the story looks from that six-months-later starting point, the revenue per share is about the same, the earnings growth is more clearly volatile, but the stock has pretty meaningfully outperformed the S&P 500 now:

Just remember that a chart can tell pretty much any story you want it to tell.

When I was writing about NuScale (SMR) for a Nomi Prins tease earlier this year (she was calling it the “Next Exxon” back in March), here’s what I said about BWXT:

“I don’t personally have any direct investments in uranium or nuclear power, but would most likely opt for BWX Technologies (BWXT) instead, just because it has established profitability from its U.S. Navy reactor work so should be much steadier (it probably has less dramatic potential upside over the next decade, too, balancing risk and reward might mean missing out on the maximum reward).”

No change to my opinion there, I still think BWXT is relatively appealing, pretty low risk and probably a steady reward for investors, given their near-monopoly business with the military. And I wish I had started nibbling on it earlier this year, frankly, given how well the stock has reacted of late (no pun intended), but I’ll keep an eye on it. Analysts expect BWXT to grow earnings at about a 10% per year pace over the next few years, so paying 20-25X earnings is probably at the top end of the “reasonable” range for these shares, and we’re right at the top end of that valuation range today, but it’s certainly possible that steadier earnings might get more of a premium valuation during uncertain times.

On the flip side, if we see a lot of furor over the military budget during the pending government shutdown debates in the next week or so, or during the campaign season next year, it wouldn’t be unusual to see defense contractors take a hit if cuts or paused programs begin to worry investors. Government shutdowns in particular, like the one we may well see this month if our divided government can’t settle on a budget, sometimes give us “buy the dip” opportunities with defense stocks.   I have no idea how the debate will go, but the House does at least have a speaker now so there’s some hope that actual negotiations will take place — the deadline for a continuing resolution or a budget agreement to keep the government open is midnight on Friday, so it could be an interesting week for the government contractors.

Have any thoughts on small modular nuclear reactors, or on favorites in this space? The other one that is brought up with some regularity is Rolls-Royce (RR.L, RYCEY), which is not really dependent on nukes in the short term but is also far larger (and looking at 2029, perhaps, for SMRs in the UK… assuming the government backs them with meaningful contracts at some point).  There are lots of others, from fusion startups to the Gates-backed TerraPower, in addition to the established nuclear companies like GE Hitachi, Areva and Westinghouse, and I guess I should also mention the often-teased Lightbridge (LTBR) and it’s “trifuel-238” nuclear fuel design, so it’s hard to envision some future monopoly… but right now, BWXT at least has a fixed book of business in new naval reactors and fueling and maintenance for the existing fleet, and that seems unlikely to disappear in the next couple decades. It may not win the next wave of SMR business, if small modular reactors do indeed become a meaningful part of the US electric grid… but they are one of the obvious contractors who the government would be likely to call on, and I’d be surprised if they lost quickly.

That’s just me, though — with your money, you get to make the call. Have a take for us? please share with a comment below…

Disclosure: of the companies mentioned above, I own shares of Huntington Ingalls Industries (HII). I will not trade in any covered shares for at least three days after publication, per Stock Gumshoe’s trading rules.