It’s no secret that shares of uranium producers have been hit hard in the wake of Japan's struggles. The radiation leaking from Fukushima has created a whirlwind of all-around nastiness, but so has the media. Taking all facts into account, we are now thinking more optimistically — despite fears that the situation in Japan could slip into a nuclear meltdown. Given the facts, we can’t ignore that global uranium consumption has risen soundly during the past few decades. It has gone from 75 million pounds of uranium oxide in 1980 to a bit over 180 million pounds today.
In all reality, the billions of dollars put into this energy source will not be thrown away and the 440 reactors operating worldwide (with many more coming online) will need uranium. The nuclear fallout in Japan will remain contained, and other countries around the world will move ahead as planned. Global interests in nuclear energy will then boost back up as a clean and reliable source of power and hold a position for growth and continued profitability.
If all goes well, uranium prices could shoot up from their current lows to their pre-Japan crisis highs. With higher oil prices, concerns over carbon emissions, and soaring demand for nuclear energy uranium prices could climb back up to $90, or even $140 a pound as they did in 2007 -- the same scenario the industry insiders have in mind for today.
Many analysts say these declines are a good chance for opportunistic investors to cash in. We like buying under-appreciated stocks -- especially when the selling is triggered by an irrational media frenzy in an industry critical for the global infrastructure.
As long as the uranium price doesn't stay down too long, there are great opportunities for investors to buy uranium stocks. For optimists and well-informed investors who can think more than one or two months ahead, we think it's an incredible buying opportunity. Here are some names we like right now:
Cameco Corp (CCJ): Cameco produces almost 16% of the world’s uranium with high grade reserves and low-cost operations. The CEO states that Japan might only impact the company’s sales by 3-5%. CCJ owns many of the world's highest-grade uranium deposits. The McArthur River mine in Saskatchewan has ore grade concentrations 100 times higher than the industry average. At the time of writing, shares trade at $30.46 apiece on a P/E 22.82.
Denison Mines Corp (DNN): In 2010, Denison produced 1.6 million pounds of uranium. Its Wheeler River discovery could have ore grade concentrations like CCJ’s McArthur River or Cigar Lake. As well as producing uranium, DNN also produces vanadium. Denison Mines is currently debt-free with $78 million in working capital. Right now, there is an opportunity to average into one of the top small cap uranium mining stocks at very nice prices. At the time of writing, shares trade at $2.53 apiece.
Market Vectors Uranium & Nuclea (NLR): This popular ETF gives global exposure to the entire nuclear power industry. This includes generation, mining, plant infrastructure, uranium storage, enrichment, and fuel transport. This ETF invests directly into stocks that constitute the DAXglobal Nuclear Energy Index. NLR is a big player in nuclear energy. NLR has considerably more assets under management, liquidity, and firm bid-ask spreads. Top and main holdings include Constellation Energy (CEG), Cameco Corp and Exelon Corp (EXC). At the time of writing, shares trade at $23.16 apiece on a P/E 19.
iShares S&P Global Nuclear Energy index ETF (NUCL): This ETF invests right into the 26 stocks that constitute the S&P Global Nuclear Energy Index. The accumulative holdings are currently split almost in half between the materials and utilities sectors. During each semiannual rebalancing, the selected companies are weighted and more emphasis is placed on bigger and more liquid securities. It’s heavy weighting in utilities has helped to shield it from some of the recent downturn. NUCL is the cheapest ETF offering on the market, but also the newest. If you were to invest in NLR, you would gain exposure to give-or-take 40% of its holdings. At the time of writing, shares trade at $40.95 apiece on a P/E 18.
PowerShares Global Nuclear Energy Portfolio (PKN): This ETF is a bit more expensive than the other two nuclear ETF offerings on the market. It invests no less than 90% of its assets in companies included in the WNA Nuclear Energy Index. The weighted exposure to Japanese securities make up almost one-fourth of the fund’s portfolio. Despite its exposure, PKN managed to outperform its larger counterpart during this decline in nuclear worth. Top holdings of this fund include European-based nuclear companies such as Areva (ARVCF.PK) and E.ON (EONGY.PK), although Japanese firm Toshiba (TOSBF.PK) as well as a number of mining firms make their way into the top five holdings as well. At the time of writing, shares trade at $20.01 apiece on a P/E 18.
Uranium Energy Corp. (UEC): Although this company controls one of the largest databases of historic uranium exploration and development in the country, it's still only in its exploration stage. Its recent entry into uranium production has proven difficult, with a 25% decline in the past month. Uranium Energy’s balance sheet is not particularly strong, and its current production is very small. UEC did successfully open the Palangana mine recently, and its targeted production is one million pounds. A boutique uranium production could call for a better value. At the time of writing, shares trade at $3.98 apiece.
Global X Uranium ETF (URA): Given URA’s extremely narrow focus in uranium, it took a hard hit in these couple of weeks. The fund, which normally trades about 300,000 shares per day, saw volume spike to just under three million shares. This ETF maintains a concentrated portfolio of about 25 holdings. URA tracks the Solactive Global Uranium Index and offers heavy weightings towards Cameco Corp., Uranium One (SXRZF.PK), and Paladin Energy (PALAF.PK). Slightly more than 50% of URA's assets are in companies in Canada, while another 31% is invested in Australian companies and about 14% is invested in U.S. firms. At the time of writing, shares trade at $15.48 apiece on a P/E 33.
Ur-Energy Inc (URG): URG is a small uranium miner company that is making big leaps in the uranium world. It should reach production within the next 12 months with the Lost Creek project. The company should have a production rate at about one million pounds. A project located beside Lost Creek will be able to use the same licenses granted, which will give it another one million lbs per year in production. The company is fully funded into production. At the time of writing, shares trade at $1.78 apiece.
Uranium Resources, Inc. (URRE): Uranium Resources Inc. owns developed and undeveloped uranium properties in South Texas and undeveloped uranium properties in New Mexico. The URRE Kingsville Dome and Rosita projects are potential producers of significant amounts of uranium. At the time of writing, shares trade at $2.11 apiece.
Uranerz Energy Corp. (URZ): Uranerz Energy Corporation is a U.S. uranium exploration and production company. Based in a historically cooperative mining state, it's in advanced uranium development in Wyoming. URZ holds roughly five properties high in reserve. Uranerz signed two agreements to provide uranium for five years to Exelon. At the time of writing, shares trade at $3.18 apiece.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.