Global X Uranium ETF: Nuclear Dawn
- The Global X Uranium ETF, which got listed in late 2010, nuked the capital of its early investors by falling from a high of about $135 to $19.71 today.
- The demand for clean energy, production, and wastage statistics, and the fact that we, along with Canada, have substantial reserves of uranium are working in the industry’s favor.
- I am bullish on the ETF as a long-term investment for patient growth investors.
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The Global X Uranium ETF (NYSEARCA:URA) nuked the capital of its original investors within a few months after its launch in November 2010. It hit a high of about $135 in March 2011 and then started melting, radioactively, for its early investors. Perhaps the time for the nuclear industry hadn’t come then. The fund is currently priced at $19.71 as of August 3, 2021, and I believe that dawn is approaching for the nuclear industry and that the ETF’s high-energy days have just begun.
Image Source: Investing.com
Here are the reasons why I am bullish about URA:
Check the price chart above. The volumes have started rising since December 2020, and the ETF jumped from about $11 then to a high of about $24 in June 2021, from where it has reacted to $19.71. It is currently priced above its 50-month EMA of $15.71, which implies that after breaking out from a multi-month range, the fund is currently in a bullish zone.
Nuclear Industry’s Prospects
Image Source: My Tweet/The Lead-Lag Report
Way back in December 2020, I had alerted investors that uranium prices were likely to recover in 2021 because the clamor for clean energy generation was growing. Well, my prediction came true and the ETF’s price gains are proof enough.
Now, I am backing my claims with some more data:
1. A bipartisan legislation that seeks to reduce our country’s dependence on foreign minerals was introduced in 2019. The idea behind the bill is to strengthen mining-related activities like surveying, training, R&D, recycling, and permitting regulations.
2. The U.S. is the largest producer of nuclear power in the world. We account for more than 30% of the global electricity generated from nuclear sources.
3. Our country has 96 nuclear reactors, which produce 20% of electricity for domestic use. Now, here is the startling fact: It requires just 25,000 tons of uranium to produce 20% of our electricity. In contrast, 624 million tons of natural gas and 750 million tons of coal are required to produce 34% and 30% of electricity, respectively, for domestic use. The rest comes from renewable energy sources.
4. The U.S. has identified a new uranium district in Alaska (McCarthy Basin), and Virginia has uranium deposits that are yet untapped. Canada’s Athabasca Basin contains the highest-grade uranium deposits in the world. So, uranium deposits are ripe for the picking and no shortage of raw material is anticipated going forward.
5. Though Interest in uranium mining waned after Chernobyl and Fukushima Daiichi accidents, the nuclear industry now knows how to handle such breaches. These days nuclear plants are equipped with added safety measures and quicker emergency responses.
The problem the industry faces is that of fear – people are scared of any leakage fallout, which is why job seekers are not interested in the industry. This fear is something that only education can eradicate. Other than that, the nuclear industry, boosted by the clamor for clean energy, seems all set and raring to go.
Image Source: URA’s Website
The good news is that about 78% of URA’s total assets are invested in stocks listed in politically stable countries. The only jokers in the pack are Kazakhstan’s stocks, which consume about 22% of URA’s total assets. Kazakhstan is plagued by human rights issues and is regarded as a politically unstable nation. But I believe that as uranium mining opportunities open up in the U.S. or Canada, URA’s managers will be quick enough to flip stocks. The ETF has a high annual portfolio turnover ratio of 59%, which implies that it flips more than half of its holdings every year.
URA is a top-heavy fund with about 62% of its total assets invested in its top 10 holdings. Its expense ratio is kind of middling at 0.69%.
Image Source: Seeking Alpha
Though the fund is a regular dividend payer since its inception, investors cannot consider it as an income-generating investment. The ETF paid $0.26 as dividend in 2020, but is likely to end up paying about $0.10 (my estimate) in 2021, giving it a forward dividend yield of 0.50% – and that’s not something that would interest any income investor.
I will not benchmark URA with its peers because we are looking ahead, not in the past. Peer comparison matters after the industry takes off, which I believe is expected to happen soon.
I believe that the nuclear industry is almost done with its days of fear and loathing, and that it will take off slowly and steadily. The data researched and given above certainly work in its favor.
Therefore, I am bullish on URA as a long-term investment for patient growth investors. Its recent price action also suggests that it can be regarded as a trading bet, and therefore short-term and swing traders can plot it on their charts and use their indicators to power in and out of the ETF.
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