By David Berman
The headlines on Japan are still uninspiring: “Japan sinking: Coast lowered by March quake, cities face daily floods at high tide” is what the Globe and Mail is going with on Monday morning. However, one analyst believes that the country’s Fukushima nuclear crisis and the global nuclear power industry will gradually stabilize, and that should be good news for patient investors who want to scoop up cheap uranium stocks right now.
Greg Barnes, an analyst at TD Newcrest, raised his recommendation on Cameco Corp. (CCJ) to “buy” from “hold,” even as he trimmed his 12-month price target on the stock to $37 from $42.
Cameco shares had traded as high as $43 in February, before the massive earthquake struck Japan in March, devastating the country’s Fukushima nuclear power plant and raising concerns about nuclear power projects elsewhere – especially in China, where growth plans are ambitious. The shares fell to a near-term low of $26.92 in mid-April, and have risen just 4.4 per cent since then.
Mr. Barnes believes that the stock is currently being valued at levels similar to those seen in 2008-09, when uranium fell to a low $40 a pound range. However, the spot price for uranium has averaged about $64 a pound this year, and he forecasts that it will average about $63 a pound for the year and then rise to $72 a pound in 2012. That’s down from an earlier forecast of $75 a pound this year and $85 a pound next year – but it's good enough to give Cameco an attractive valuation based on its earnings before interest, taxes, depreciation and amortization.
“We believe that as the uranium market and the nuclear industry stabilize over the next 12 to 24 months post the Fukushima disaster, and as it becomes evident that the growth in nuclear power -- while slower than previously expected -- will not grind to a complete halt,” Mr. Barnes said in a note.