Uranium Resources Could Outperform Sector At Large - But Wait For The Dip

| About: Westwater Resources, (WWR)
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2012 has been a great year for stocks thus far, although uranium (along with rare earths) have been especially worthwhile: in the first month of the year, the uranium sector as measured by URA rallied over 28%.

I believe uranium has much further to go, as I expect the majority of uranium stocks with fruitful operations as well as the underlying metal itself to re-visit their previous all-time highs reached in 2007. And as we inch closer to the conclusion of the Megatons to Megawatts program while geopolitical tensions continue to intensify, I think the odds of sharp increases in the price of uranium become more likely.

And so I'm bullish on the sector, as I've noted numerous times in my previous articles on Seeking Alpha, and am on the hunt to find the best opportunities in this space. Accordingly, the next stock I've added to my watch list is Uranium Resources (URRE). Here's the rundown of what I find noteworthy about URRE:

  1. The firm has been around since 1977, operating primarily in New Mexico and Texas in the United States. It has had some profitable quarters, most recently during the uranium bubble of 2007, but has not been profitable since. The firm has produced over 8 million pounds of uranium since its inception.

  2. Most noteworthy is that URRE has 183,000 acres of uranium mineral holdings and 101.4 million pounds of in-place mineralized uranium material in New Mexico -- as well as an NRC license to produce up to 1 million pounds. If that resource is fully monetized at rising uranium prices in the years to come, that could really catapult this company into a good position. From my perspective, this is what is most promising about URRE.

  3. URRE is also a firm that employs ISR mining technology to extract uranium. I am particularly bullish on firms employing ISR, as I believe the value network surrounding ISR can disrupt traditional open-pit mining, enabling uranium to be extracted at lower costs and delivered to customers that previously may have been priced out of the market. This is an especially important consideration when we look at other parts of the emerging value network in nuclear technology, which includes the development of smaller, modular nuclear power generators as well as corresponding technology pertaining to nuclear waste/recycling.

  4. URRE also has a bit of "smart money" factor, in that it has a joint venture with Cameco (NYSE:CCJ) - the largest uranium miner in North America. And given its location in Texas and its employment of ISR, it also is very compatible with Uranium Energy Corporation (NYSEMKT:UEC), a company that bears the same characteristics. Is there a takeover possibility here? Perhaps.

  5. Insider activity is something I find less than promising; many insiders seem to have sold at quite low prices. Perhaps there were personal reasons, perhaps they just got scared like many others after the Fukushima crisis...either way, though, the fact that most of the recent activity has been selling-related leaves me wary.

  6. I also find the balance sheet to leave something to be desired. The firm's current ratio is under 2 while its price to book ratio is over 3.

At this point, I have to pass on URRE, but I have added it to my watch list. If the price-to-book ratio can fall to under 2, I may find it to be worth a shot. And given the stock's immense volatility - its beta is near 3.5 - this is something I certainly think is possible if there is a broad sell-off.

Like many stocks with a market capitalization of under 200 million in promising sectors, URRE is one where I think investors can enter on a pullback, exit half their position on a quick 100% rally, and let the remainder ride until the sector as a whole appreciates too much too fast.

Disclosure: I am long UEC, CCJ.