Zacks Analyst Blog Highlights: United Continental Holdings, Delta Air Lines, Southwest Airlines, AirTran Holdings and AMR

Mar 16, 2011, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, March 16, 2011 /PRNewswire/ -- Zacks.com Analyst Blog features: Berkshire Hathaway (NYSE: BRK.B), Lubrizol (NYSE: LZ), First Solar (Nasdaq: FSLR), Solarfun (Nasdaq: SOLF) and J.A Solar (Nasdaq: JASO).

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Here are highlights from Tuesday's Analyst Blog:

Understanding Japan's Disaster

Japanese insurance companies -- and re-insurance firms worldwide -- are going to take a big hit. While premiums will probably increase in response, it will take a long time to make up those losses. Given Berkshire Hathaway's (NYSE: BRK.B) exposure to the catastrophic insurance market, my guess is that Warren Buffet wishes he had held off on his offer for Lubrizol (NYSE: LZ), although over the long term I think that deal will probably work out OK.

In the very short term, the insurance companies there are going to have to sell off assets to pay the claims. Those claims are going to have to be paid in yen, which is one reason that the yen has rallied on the news. With the economy slowing dramatically, there is less overall demand for resources. A steel mill that has been shut down for lack of electricity -- and steel mills use a LOT of electricity -- is not going to be using as much iron ore.

On the other hand, one has to assume that all those cars you saw floating away when watching the Tsunami devastation over the weekend are going to be replaced, and the buildings rebuilt. So after a short-term decline in demand, the net effect on demand for commodities should increase, not fall.

Nuclear Power Plant Future

The nuclear power at Daiichi will need to be replaced, and that means more demand for coal, oil or natural gas. That is effectively a permanent shift. Those four reactors are gone for good. Cooling them with seawater is a last ditch effort to prevent a repeat of Chernobyl. Doing so means that they will never be used again to produce power (seawater is very corrosive).

Fortunately, these four reactors all had containment vessels, unlike Chernobyl. So far this looks more like Three Mile Island than it does Chernobyl, but the story is not over yet. A Three Mile Island outcome is at this point the best-case scenario, and keep in mind that it has never produced another watt of power after its accident. I suspect that given current pricing, and overall environmental concerns, that natural gas will be the primary replacement for the lost generating capacity in Japan.

The renaissance for nuclear power has been aborted. Many had hoped that the combination of new and safer reactor designs, along with the need to reduce greenhouse gases and higher fossil fuel prices, would make nukes economically viable again. Whether they really are is a matter for debate, since they require massive loan guarantees to be built, along with liability caps.

Since nuclear power is a very high fixed cost/low variable cost endeavor, the economics of it are largely a question of how long it takes to build them, and how much it costs for the safety measures that surround the actual reactors (including things like the containment vessels). Here in the U.S., even if we don't officially reverse course on building more of them, it will not be any easier getting them sited and built in the wake of the Japanese tragedy. That will tend to raise the cost of them and make them un-economical to use.

The U.S. currently has 104 nuclear power plants, and all of them were in operation before 1978 (Three Mile Island). Environmental opposition to building more of them had been softening, in a "lesser of two evils" way, since nukes do not produce greenhouse gases.

China and India will most likely continue building them -- their thirst for electricity is nearly insatiable. However, I would expect that it will be a very long time before any more of them are built in Japan, Europe or the U.S. Many of the existing plants are probably close to the end of their useful lives, and thus we will probably see a net reduction in the amount of electric power we get from nukes over the next decade.

So if nukes are effectively off the table as an answer, and greenhouse emissions are still a concern (they are) then the demand will probably have to be taken up by solar and wind. That is why the solar stocks such as First Solar (Nasdaq: FSLR), Solarfun (Nasdaq: SOLF) and J.A Solar (Nasdaq: JASO) have been one of the few groups that have rallied on the news out of Japan.

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