Immediately following Japan’s natural catastrophe and subsequent nuclear disaster, I wrote an article titled, “Is Now the Time to Buy Uranium Miners?”
In this article I suggested that history displays time and time again that buying shares amidst the onslaught of panic selling ultimately pays handsome rewards.
For instance, as you can see in the uranium spot price chart below (data courtesy of Capital IQ) the price of uranium quickly moved from $63 per pound to a low of $49.75 shortly after the catastrophe occurred in Japan. Since the low was established two trading days after the Japanese disaster the spot price has bounced back 18.6 percent, to $59 per pound.
Uranium Spot Prices
Let’s be realistic about the fundamentals of the uranium market.
Remember, there are already 440 nuclear reactors in operation across the globe. There are an additional 108 nuclear reactors currently under construction in the world’s two largest emerging markets of China and India. The World Nuclear Association (WNA) estimates there will be an additional 331 nuclear reactors (including the 108 in China and India) in operation within the next 15 years.
At the end of the day, the world’s energy needs outweigh the risk of an isolated incident in Japan. You don’t make a bad situation (declining fossil fuel resources and increasing pollution) worse by making hasty decisions to eliminate a key and clean energy source for the future.
The available supply of uranium remains unchanged since the Fukushima disaster, and according to the World Nuclear Association demand remains strong.
If we look out over the next 8 to 10 years, which is the amount of time it takes a nuclear power plant to become fully operational, the market will remain 400 million pounds short of needed demand on an annual basis – forget about any increase in demand from new nuclear power plants.
The fundamentals of the current uranium market are clear – there is a significant gap between current supply and demand. Rising future demand will only amplify the shortfall.
The top 5 uranium producers, which make up almost 90% of the uranium supply market, only produced 110 million pounds of uranium in 2010. In other words, uranium producers need to produce nearly four times their current amount just to meet estimated new demand. The new supply will have to come from somewhere, or the price of the existing supply will need to increase dramatically to clear the market. In either event, shares of the uranium mining stocks would likely increase significantly from their current levels.
The bottom line is that even in the wake of the Japanese catastrophe uranium’s supply crunch lives on.
Some nations have decided to take a 3 month reprieve to review the safety standards set forth in the new construction of nuclear facilities. This is a rational way to proceed as it will allay some fears of the uninformed masses, but in my opinion it is more of a political maneuver than anything.
As for uranium stocks, current share prices are completely divorced from underlying fundamentals. Once the noise in the market created by the Japanese catastrophe is gone, stocks will once again reflect earnings – and while sales to one reactor in Japan may slump, the world’s other 439 reactors will be as hungry as ever for uranium fuel.
The tragedy in Japan, and subsequent fear in the market, has presented us with the opportunity to invest in several well-managed and fundamentally sound uranium companies. For well-informed investors with the patience to tolerate volatility for a couple of months, I think this could potentially be the single best opportunity to buy and hold uranium stocks.
I will continue to track the nuclear/uranium story closely and report back to you here in Small Cap Investor Daily. Over the next two weeks I will go over the fundamentals of several of my favorite uranium stocks and why they should perform well over the long-term. Feel free to send in questions, or companies, that you would like me to address. My address is [email protected].
As you know, I am long-term bullish on uranium fundamentals, and hope that you can join me for what should be a prosperous ride.
Related Tickers: Powershares Glob Nuc Energy ETF (NYSE:PKN), iShares S&P Global Nuclear Index Fd ETF (NASDAQ:NUCL), Market Vectors Nuclear Energy ETF (NYSE:NLR), Global X Uranium ETF (NYSE:URA), Uranium Resources, Inc. (NASDAQ:URRE), Cameco Corp. (NYSE:CCJ).
Wyatt Investment Research is led by founder Ian Wyatt, who serves as Publisher and Chief Investment Strategist. Our team also includes a group of talented research analysts and editors who aim to uncover great investments and present those investment ideas to our growing group of loyal subscribers.
Ian Wyatt is an active investor, a well-regarded investment expert and an Internet entrepreneur. He is the Chief Investment Strategist at Wyatt Investment Research, and plays a leading role in each of the company’s investment newsletters and trading services. As a well-regarded market expert, Ian has written for Marketwatch, Zacks Investment Research, Seeking Alpha, Yahoo! Finance and The Burlington Free Press. He has been interviewed or quoted in articles in well-known publications including AOL Finance Blogging Stocks, Kiplinger’s Personal Finance Magazine, Barron Magazine, Barrons.com, Forbes.com, The Dick Davis Digest, The Dick Davis Income Digest, The Wall Street Transcript, TheStockAdvisors.com, Money Show Digest, The New Jersey Star Ledger, The Wisconsin State Journal and The Seattle Times.