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In a market full of overbought and overvalued stocks, investors should be looking at some sectors that remain cheap and could soon be poised to play "catch-up" with the rest of the market. The nuclear energy sector, or uranium stocks, appears to be overlooked by many market participants, but that might not last for long as new nuclear plants are being built and as demand increases for energy around the world with an improving economy. I recently wrote about a couple of other uranium companies like UR-Energy (NYSEMKT:URG) which has new upside catalysts and also trades for just over a buck and Cameco (NYSE:CCJ), as these stocks also appear poised for strong gains into 2014, for some of the same reasons. In that article, I also pointed out how investors made huge gains by buying solar stocks when that industry was out of favor and why nuclear energy stocks could be positioned to rally like the solar sector. For now, let's take a look at yet another uranium stock that has significant upside potential:

Denison Mines Corp. (NYSEMKT:DNN) owns significant world-class uranium deposits which are strategically important for use in the production of nuclear power. Uranium prices came under pressure after the 2008 financial crisis and also after the Tsunami in Japan which subsequently caused a nuclear incident. Uranium prices have yet to recover back to the highs reached just before the financial crisis, however, with global population growth and recovering economies, it seems to be just a matter of time before uranium surges again. For a number of reasons, Denison could be a high-potential stock and at just around $1 per share, it appears very undervalued as it is priced like an option on the future of uranium demand. Here are a number of factors which could push the stock up sharply as early as January, 2014:

Denison shares are trading near 52-week lows which means it is likely under pressure from tax-loss selling. When this selling pressure ends at the end of December, the stock is likely to move higher.

Buying stocks that could rise significantly from the end of tax-loss selling in a "January Effect Rally" makes strategic sense right now which is why I have been focused on other cheap stocks that also appear poised to rebound soon, like the two tech stock bargains in this article.

Furthermore, according to Shortsqueeze.com, there are nearly 7 million shares short. Based on average trading volume of about 600,000 shares, the short position is equivalent to around 11 days worth of trading volume. This means that there is a enough of a short position to fuel a potential rally into January. The shorts seem focused on the potential downside risks which include the possibility of another nuclear crisis, or global economic decline which would reduce demand for nuclear energy. However, these appear to be past us now and shorts who focus on these issues seem to be looking in the rear-view mirror rather than at the global growth in nuclear energy demand. Denison has a strong balance sheet with about $27 million in cash and almost no debt, and this further reduces risks for shareholders.

In addition to the likelihood for a rebound into January, Denison shares could be poised for significant gains in the long-term and it even appears to have takeover potential. It also has positive ratings from a number of analysts. Earlier this year, an analyst at Raymond James upgraded the shares to "outperform" due to "high" takeover potential and because of "world-class" uranium deposits at its Wheeler and McClean Lake Mill projects. Analysts at Cantor Fitzgerald initiated coverage of Denison with a buy rating. Zacks Equity Research recently put a buy rating on Denison shares as well.

The long-term outlook remains very bullish as demand for nuclear energy is poised to grow. The concerns about the industry due to the crisis in Japan seem to be fading and its prime minister is taking a positive view on nuclear power. China has a number of new nuclear plants in the planning and construction phase which will substantially boost uranium demand over the next couple of decades. If you believe that China's population will continue to grow and that energy demand will also rise, uranium could be a great way to play this secular growth story. One recent Seeking Alpha article details Denison's high quality uranium deposits and the fact that it has significant takeover potential from a company like Cameco or Rio Tinto (NYSE:RIO), it states:

"On our recommendation, we view Denison as one of the premier uranium explorations globally with a dominant landholding in the eastern Athabasca Basin. The company has a 60% interest in Wheeler River, the world's third-highest-grade uranium deposit that continues to grow. It's got a 22.5% stake in the McClean Lake mill, the most advanced uranium processing facility globally, which is undergoing a doubling of plant capacity at nil cost to Denison and should yield some nice toll milling revenues starting next year. It's got a 60% stake in Waterbury Lake, the western extension of Rio Tinto's Roughrider, and then a highly prospective suite of exploration projects elsewhere in the Athabasca as well as in Mongolia and in Zambia.

In addition to outstanding exploration upside at those projects, we recommend Denison on high takeout potential. We believe these growing high-quality assets in low-risk jurisdictions would be a natural fit for many strategic entities, such as Rio Tinto, particularly after the recent revision to the NROP policy, as we discussed, as well as Cameco or even Asian nuclear utilities. Denison is well run. It's got a solid cash position. Like our other top picks, Denison can weather uranium price weakness in the near term, but it's poised for that inevitable rebound in uranium prices and industry sentiment. That's really what drives our valuation on the company."

The odds of a takeover of Denison now appear more likely than ever because of new trade agreement that was made in late October. This new agreement announced by Saskatchewan Premier Brad Wall removes foreign ownership restrictions in the uranium mining industry. Prior to this agreement, foreign ownership of uranium mines was capped at 49% which made foreign companies either seek a partnership with a Canadian company or opt out completely since owning a minority stake gives no control over the asset(s) or operations at hand. This new development is expected to lead to billions in foreign investment into Canada's uranium industry and one recent article details why investment and takeover deals could come from Areva (OTCPK:ARVCF) or Rio Tinto (RIO). This deal completely changes the landscape and it could have suddenly raised the stakes for Canadian companies like Cameco to consider a buyout of Denison (before a foreign company does) since that would increase its exposure to the high-grade and uranium-rich deposits in the Athabasca Basin.

There is one more point that investors should consider: Earlier this year, solar energy stocks were just about left for dead. For example, stocks like Trina Solar (NYSE:TSL) were trading for less than $4 in April, but have since more than quadrupled in a surge that recently took the stock above $17. Yingli Green Energy (NYSE:YGE) saw its shares go from less than $2 in April to more than $8 in October. Many solar stocks are still losing money and yet that did not stop investors from sending this heavily depressed and shorted sector into the stratosphere. That is because markets typically move stocks well in advance of any real rebound in terms of financial results. The huge gains in the solar sector shows how rewarding it can be to buy depressed stocks in out of favor sectors before the masses get involved. There have been major rallies in uranium and in nuclear energy stocks in the past, and chances are there will be more in the future. All these factors coupled with takeover potential make Denison shares a "strong buy" right now.

Data is sourced from Yahoo Finance. No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Disclosure: I am long DNN, URG, CCJ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Source: Denison: Why This $1 Uranium Stock Could Go 'Nuclear' With Upside In January