With the Nuclear Energy ETF (NLR) and Uranium ETF (URA) down 46% and 65% respectively from the their highs for the year, many investors are looking for the direction of the nuclear sector moving forward. Some are calling for a bottom while others are staying on the sidelines with a more skeptical stance. In our view, future performance of nuclear energy stocks depends on a number of factors, including developments in the global macro environment, international public policy sentiment and nuclear industry supply and demand fundamentals. Depending on the developments in each of these categories nuclear stocks can continue the downward slide or launch a sustainable rally.
The following framework may be helpful in assessing potential sector performance in the next several months. It should also be useful in understanding performance of individual companies within the sector, such as Cameco (CCJ), Denison Mines (DNN), Uranium Energy (UEC), Uranerz (URZ), Ur-Energy (URG), and Uranium Resources (URRE).
The key issues investors should consider are global macro environment and investor sentiment toward risky assets, as well as industry specific factors such as approval of new nuclear construction projects in China, restart of the nuclear power plants in Japan (particularly those in addition to already approved Ohi 3 and Ohi 4 reactors), and amount of secondary supply available to the market.