It’s often overlooked by other commodities — particularly in light of the dramatic fall in Brent crude oil — but a severely underappreciated comeback in uranium may be in the works this year.A positive turnaround in intense geopolitics combined with consistent demand for clean energy should serve to bolster the fortunes of uranium stocks, most of which have been deeply troubled in the financial markets.
The giant pink elephant in the room is Iran, with which the U.S. has had a bitterly contentious relationship over the last several decades. The landmark nuclear deal that was negotiated on Jan. 16, 2015, lifted key economic sanctions, including the unfreezing of $50 billion worth of foreign accounts. In return, Iran will curb the scope of its nuclear power plants and will export virtually all of its low-enriched uranium holdings.
Naturally, such high-level negotiations in light of unprecedented violence in the Middle East have hit some snags. Rogue entities that wish to enrich weapons-grade uranium for nefarious agendas still wield significant leverage in Iran, prompting a set of new sanctions to be imposed by the American government.
Nevertheless, there are positive signs that can’t be ignored, such as the relatively quick return of U.S. Navy sailors caught violating Iranian maritime borders. Also, the nuclear deal itself is deemed a major step in the right direction.
While the concept of a truly friendly relationship between the U.S. and Iran is a long ways off, the thawing of the ice does open up potential economic channels that uranium stocks could take advantage of. In addition, global demand for environmentally clean energy resources is only growing higher.
According to the World Nuclear Association, the process of converting uranium into utilitarian use is exceptionally cost-effective, making it attractive to not only developed nations, but to the emerging markets as well.
With the harsh memory of the 2011 Fukushima disaster slowly fading into memory, the practicality and economics of uranium-based energy is coming to the forefront. Here are three uranium stocks that can emerge strongly from the recent fallout.
Uranium Stocks to Buy: Global X Funds (URA)
Uranium stocks can be quite nasty if an investor is careless about his or her exposure. Sadly, it’s not uncommon for uranium producers — whether a major player or a speculative junior company — to have absorbed losses of 70% or more over the past five years. Exchange-traded funds like Global X Funds (URA) can help mitigate some of the choppiness by spreading the risk across several individual holdings.
Timing is still critical, however, especially among uranium stocks. The good news for investors is that there may be no better time to buy up the URA ETF. One of the underappreciated components of the uranium bull story is the rapidly brewing conflict between Saudi Arabia and Iran, which puts the recently finalized nuclear deal in a whole new context.
Ethnically and culturally, Saudi Arabia is run by Sunni Arabs, whereas Iran is a Persian nation whose politics are dominated by Shiites. That alone explains centuries of animosity. The mutual hatred is further complicated by the fact that Saudi Arabia’s extremely vulnerable economy — crude oil being their only claim to fame — has historically been backed by the U.S., whereas Iran has been widely shunned by the international community.
Everything changes with the landmark agreement. While there’s no guarantee that Iran will continue to play ball, they have every incentive in the world to do so. After years of crippling sanctions, Iran will be eager to showcase its capabilities, and attracting foreign investment dollars for uranium energy research would be one of the top priorities. Without firing a single shot, they could undermine Saudi Arabia, a country which is under increasing scrutiny given their documented, long-standing support of extremist ideologies and organizations.
The present trajectory of this complicated geopolitical issue suggests that the URA ETF stands to gain handsomely. Even if events turn out differently than expected, uranium is still one of the most sought-after commodities — and that is broadly bullish for potential URA investors.
Uranium Stocks to Buy: Cameco Corporation (USA) (CCJ)
In April of last year, I was quite harsh on Cameco Corporation (USA) (CCJ), citing problematic issues with its profitability margins and the lack of convincing technical momentum. Based on its historical performance under general bearish conditions in the markets, I stated that CCJ may crumble by September. While the ride was an undulating one, CCJ did eventually do just that, hitting a bottom below $11. Now it’s a buy — what gives?
The aforementioned nuclear deal very much sets the tone of a bullish environment for uranium stocks. Last spring, an agreement on a preliminary nuclear framework was enough to cause CCJ to jump 24% for the month of April. It also temporarily made bearish arguments appear extraordinarily foolish. But with the landmark deal finalized, CCJ and other uranium stocks should be major beneficiaries.
The financial front for Cameco is still iffy. Earnings per share performance is especially poor, with CCJ missing Wall Street consensus estimates for the last three reporting quarters — the average negative surprise is approximately 32%. However, the company has done a good job keeping operating expenses in check over the past few years. Although the cuts aren’t enough to boost CCJ’s operating margins to pre-Fukushima levels, it does demonstrate a willingness to adjust to the harsh realities of the markets.
That show of intent may be enough for investors willing to gamble on speculative sectors like uranium stocks. Since hitting a price of $10.87 on Jan. 20, CCJ has shot up 14%. That’s hardly an accident in my or anyone else’s book.
When viewed as a whole, uranium companies have significant factors working in their favor — and Cameco could end up taking the lead.
Uranium Stocks to Buy: Tokyo Elec Power NPV (TKECF)
Inevitably, when the broad issue of uranium energy is discussed, the Fukushima meltdown eventually dominates the discourse. At the epicenter of the controversy is Tokyo Elec Power NPV (TKECF), better known by its acronym TEPCO. The effort into decommissioning the crippled Daiichi power plant is already the world’s most expensive industrial cleaning project, with total costs estimated to reach into the hundreds of billions of dollars. TEPCO is also widely criticized for its fumbling of the nuclear disaster.
So why, then, would investors buy TKECF shares?
While TEPCO’s popularity must rank somewhere below that of pond scum, they have one ace up the sleeve that cannot be denied — Japan needs them. When uranium reactors were shut down across the island nation in response to Fukushima, Japan began to rely heavily on fossil fuels. While that may be a viable solution today given the sharp drop in oil prices, it leaves the country potentially vulnerable to future supply/demand fluctuations.
Like it or not, TKECF provides Japan with the best energy solution, both for the present situation and for the vision of tomorrow. With Tokyo set to take center stage for the 2020 Olympic Games, it is absolutely imperative that their energy policy is in pristine order. Messing around with unreliable — and dirty — resources like coal is simply an unacceptable proposition.
It should be noted that TKECF is a thinly traded stock, which inherently carries liquidity risk. In addition, uranium stocks in general are volatile trading vehicles. But for those who are willing to stomach the choppy ride, TKECF could surprise a lot of people.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.