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Institutional Buying Could Push Uranium Energy Corp. (UEC) Higher

|Includes: Uranium Energy Corp (UEC)
Uranium stocks were hard-hit in the wake of last March’s earthquake and tsunami and the resulting disaster at Japan’s Fukushima nuclear plant. A number of countries have put plans to build nuclear reactors on hold, and the price of uranium is down from around $75 a pound at its January high to around $57 a pound.
It would be easy and logical to believe that the outlook for uranium stocks is going to be uninspiring for a long time to come, but when I look at the long-term charts of stocks like Cameco (NYSE:CCJ), Dennison Mines (NYSEMKT:DNN), Uranerz Energy (NYSEMKT:URZ), Uranium Resources (URRE) and others, I see two things: These stocks are on long-term support levels and they appear to be making a stand and sketching out base formations. In other words, what the action in these stocks is suggesting is that the death of nuclear power may be greatly exaggerated.
One stock in particular that has caught my eye is Uranium Energy Corp. (NYSEMKT:UEC), which dropped from $7 to below $3 in the aftermath of Fukushima. UEC intrigues me for three reasons.
First, the stock appears to be sketching out a nice base after bottoming around $2.75 in May. Any move above $3.30 would complete that base, and would suggest that UEC has embarked on a new uptrend. Second, on June 14 UEC announced that it had landed its first multi-year uranium sales contract. Up until this point, UEC has been developing uranium properties and producing uranium but has had virtually no revenue. The value in the stock has come from the value of its properties and reserves.
Since UEC began production in November 2010, it has produced 100,000 pounds of uranium at a cost of approximately $15 per pound. In each successive quarter, production has more than doubled while production costs have declined. In addition, the estimated value of its reserves has been rising sharply. But with the announcement that UEC had secured a three-year contract to deliver 300,000 pounds of uranium over three years starting in August 2011, Uranium Energy crossed over a threshold that should attract new attention to this company as a viable new producer of uranium with cash flow.
The third reason I find UEC interesting is that it has been attracting a great deal of buying from institutional investors. A number of large, well-known institutions bought major stakes in UEC in the first quarter of 2011. Oppenheimer Funds, which owns around 6% of UEC, added over 1 million shares to its position in the quarter ended March 31. Munder Capital Management bought an initial stake of nearly 1.8 million shares in the March quarter; US Global Investors bought over 1 million shares; Global X Management bought nearly 1.3 million shares; Integrity Asset Management bought over 1.1 million shares; and Van Eck Associates took an initial position of 970,415 shares.
Some of these positions were undoubtedly taken prior to the March nuclear meltdown in Japan, and it will be very interesting to see how many of these institutional investors added to their stakes in UEC during the June quarter after the stock had declined dramatically.
What these purchases indicate to me is that some very smart investors not only have Uranium Energy Corp. on their radar screens but that they were willing to take major stakes in the company in an early stage of its development and prior to the generation of any significant revenue. What this means to me is that if UEC delivers on its potential — which it appears to be doing — these investors and others like them will more than likely raise their stakes, providing ongoing support for the stock … and that continuing good news will find a readily receptive audience and translate into a steadily rising stock price.
My bet is that UEC has seen its low and that it’s already embarked on a new uptrend. Watch for a breakout above $3.30 to confirm that uptrend.
Author: Mark Biondetti
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