Act Now On Nuclear Energy [Cameco Corporation (USA), Rio Tinto plc (ADR), Denison Mines Corp (USA)]

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July 16, 2014 11:31am NYSE:NLR

nuclearAndy Crowder: Time heals all wounds. Nuclear energy is back in vogue less than four years since the Fukushima power-plant disaster.


Japanese Prime Minister Shinzo Abe has loosened the country’s post-tsunami stance against nuclear energy, saying he would be open to having new nuclear reactors built. The Japanese government had previously vowed to shut down the country’s 50 working reactors by 2040.

Other new reactors are being built in places like China, Russia, India, South Korea and the UAE in the coming years. Worldwide, 65 nuclear plants are currently under construction, and another 160 are in the planning stages. All told, more reactors are being planned now than before Fukushima.

The recovering post-Fukushima demand for nuclear energy is good news for uranium prices – and uranium stocks.

Uranium is a metal extracted from the Earth’s crust and used to produce nuclear energy. And right now, this bit of rare earth is cheap. At roughly $42 per pound, uranium is about as cheap as it’s been in the last three years. With more nuclear plants coming online, that means global demand for uranium is on the rise.

Perhaps the best way to play the impending uranium rally is to buy uranium stocks – one in particular.

Cameco Corporation (USA) (NYSE:CCJ) is probably the best place to start. It’s one of the largest uranium producers in the world – and it appears the stock is already starting to rally.

Take a look at this two-year chart of Cameco shares  – and note the drop-off that occurred after the nuclear disaster in Fukushima in March 2011:

nuclear-energy

The stock is still trading for less than half its pre-power-plant-spill price. It’s still relatively cheap on a price-to-earnings basis, with a forward P/E of 16.5. As demand for nuclear energy returns, premier uranium producers like Cameco should benefit.

Other uranium stocks, such as Rio Tinto (NYSE: RIO) and Paladin Energy (OTCM: PALAF), are also trading at relative discounts. But each comes equipped with a major caveat.

For Rio Tinto, uranium is just one of the many natural resources the $100 billion company mines, and it could still struggle even while its uranium business flourishes. And Paladin Energy is a penny stock trading on the over-the-counter market. Those types of stocks are always risky investments.

So if you’re looking for the best pure play on the expected uranium boom, buying Cameco  shares is likely the way to go.

Look, no one has forgotten the horrors of what happened at the Fukushima nuclear plant less than four years ago – nor will they ever. But the initial hand-wringing has subsided, and people are again realizing that they still need nuclear power – even in Japan.

With large emerging markets like China, India and Russia ramping up their nuclear power projects, uranium prices could soon return pre-Fukushima levels.

I like Cameco under $20 a share.

And if you can’t get excited about Cameco, then I totally understand. Can you get excited about a 1.9%dividend while you wait for some price appreciation? Probably not.

But, it’s still the largest uranium company (by a long shot) – and the world still needs uranium.

Uranium prices can only stay low for so long. Sooner or later, money-losing producers are going to stop mining the commodity. And eventually countries like Japan will have to restart their nuclear power production. The alternatives (such as liquefied natural gas) are just too expensive. That should be good news both for the uranium market and Cameco’s stock price.

So, here we are – with a chance to buy a world-class stock at a low price. We don’t get too many chances like this one. When you’re given these chances, you have to pounce. Be the smart money and buy the stock when it is incredibly unpopular.

This article is brought to you courtesy of Andy Crowder from Wyatt Investment Research.


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