Uranium And Nuclear ETFs Heat Up As Japan Turns On Reactors

Includes: NLR, NUCL, URA
by: Tom Lydon

After the devastating earthquake and subsequent fallout in Fukushima, Japan is set to turn back on its nuclear reactors, bolstering uranium prices and nuclear industry related exchange traded funds.

Bank of Nova Scotia predicts that uranium prices could jump 40% by the end of the year and fuel greater merger and acquisition activity in the rare earth metal mining space as Japanese power plants restart, reports Tara Lachapelle for Bloomberg. Rob Chang, a Toronto-based analyst at Cantor Fitzgerald LP, told Bloomberg:

"Now is a great time for cherry-picking good assets. We think 2014 is going to be really the kick-off year for the uranium space. The timeframe for cheap acquisitions may be running out."

Ben Isaacson and Shawn Siddiqui, analysts at Bank of Nova Scotia, argue that uranium has bottomed out and is set to recover. According to a Bank of Nova Scotia report:

"When the uranium market starts to pick up steam, we expect to see increased M&A activity."

Ever since the Fukushima disaster, uranium stocks have plunged and their median price-book ratio is still hovering around half of where it was before the earthquake. Futures on uranium's tradable U308 were at $35.7 per pound this week, compared to $67.5 before the 2011 calamity.

Japan, formerly Asia's largest nuclear power producer, could restart one in every five reactors this year, pushing uranium prices to about $50 per pound, according to Analysts' median estimates.

Investors interested in gaining exposure to the sector can look at ETFs that target uranium mining.

The Global X Uranium ETF (NYSEARCA:URA) follows the 23 global uranium mining companies, with a 60% weight toward Canada, 20% in Australia and 11% in the U.S. The ETF has a hefty 23.2% weight toward Cameco Corp (NYSE:CCJ). Chang of Cantor Fitzgerald believes that Denison Mines (NYSEMKT:DNN), which makes up 10.0% of URA, and Fission Uranium Corp, which is 1.2% of URA, are two prime targets for Cameco.

The Market Vectors Uranium+Nuclear Energy ETF (NYSEARCA:NLR) takes a broader approach, including exposure to large and more stable utilities companies at 32.4% of the portfolio, along with uranium producers - NLR holds 4.3% in CCJ and 4.9% in DNN. Additionally, the ETF includes a 24.7% weight toward Japan, followed by 21.5% in France and 20.2% in the U.S.

The Global X Uranium ETF is up 2.8% year-to-date, while the Market Vectors ETF has gained 2.3%. Over the past year, URA was down 23.1% and NLR was up 16.7%.

Max Chen contributed to this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.