In the energy markets, the month of June offered three major developments:
- Natural gas prices continued to rise in the US; they are now at a six month high. I don't consider this to be a short-term rally, but rather that the market had overshot to the downside due to an unusually mild winter. I suspect the world to continue its march towards liquefied natural gas, which I think will ultimately have natural gas prices settle above $4.
- WTI Crude and Brent Crude have both risen sharply since the end of June, and I believe the bottom is in. Thanks to monetary inflation and the fact that the easy to find and refine oil is already gone -- as evidenced by the fact that oil production has essentially been flat since 2005.
- Japan restarts a nuclear reactor, which suggests that finally, the world may be ready to move beyond the Fukushima disaster and except the inevitability of nuclear power as the only source of energy the market has accepted that can provide emission-free baseload power.
These three developments are very bullish for uranium -- the mineral that serves as the fuel for almost all the nuclear reactors in the world today. I believe the primary reason uranium and nuclear power have remain depressed sectors over the past year was the Fukushima disaster, although low natural gas prices certainly added to the case that nuclear power did not present enough advantages over natural gas. With rising natural gas and oil prices, and solar and wind still having their problems of not being a source of always-on power (but rather an intermittent source, dependent upon when the sun is shining and when the wind is blowing), the case for nuclear power fueled by uranium becomes even more appealing and harder to ignore.
Spot market uranium prices have been consolidating at just above $50 since August of 2011. I believe this constitutes a great time to accumulate, as I fully expect the market to go its previous highs near $140 reached in 2007, and perhaps to $200 and beyond.
In terms of uranium stocks, many of them are at or near their all-time lows -- making this an outstanding contrarian opportunity. Consider, for instance, Uranium Energy Corporation (UEC) -- one of my favorite uranium stocks that I routinely mention in my Seeking Alpha articles. UEC reached a low of $1.88 on June 14th, from which it has rallied sharply. My average entry price on this stock is just below $3, and I'd be averaging down if it wasn't already one of the largest parts of my portfolio. For those who can average down and for those who aren't in the stock already, I consider this to be a prime opportunity; UEC is a miner already in production that has been aggressively acquiring ISR mines (the only kind of mining that is economically viable with uranium prices below $80 per pound) since the uranium crash of 2011. UEC also has a top executive team that includes Harry Anthony as the firm's COO; Anthony ran a uranium consulting firm for years before joining UEC, and is one of the top authorities on ISR mining.
In terms of uranium producers, Cameco Corporation (CCJ) is the no-brainer here -- and it had an excellent June, rallying 14.5% during the month. This is another sign I think the bottom is in on uranium prices, as Cameco spent the preceding month of May at below $20 per share. On June 15, 2007, when the uranium bubble of 2007 was near its peak, Cameco reached a high of $55.60. I consider it likely that within several years Cameco will be back at those prices, with a good chance of going even higher. Like UEC, Cameco used the 2011 uranium crash to its advantage, securing additional properties and strengthening its position in the uranium market (see my most recent article on this).
I've been aggressively buying uranium stocks since November of 2011; my only regret is that I did not wait until May. While I'm extremely delighted with the prices I got in at and believe they will be well in the money in several years as uranium heads higher and the supply/demand crunch in the uranium market grows more intense, investors with capital they can deploy to the uranium market are in an even better position. And for those who don't want to hold uranium stocks but rather want the underlying mineral -- a strategy I think is worth incorporating -- Uranium Participation (URPTF.PK) is what you're looking for, as it is simply a holding company that buys and holds uranium.