Increasingly, countries are looking to diversify away from hydrocarbons, and nuclear power as a source of clean energy seems to be gaining traction. The possibility of increase in nuclear power adoption is reflected in the price action for uranium stocks.
According to the International Atomic Energy Agency, global nuclear generating capacity was 393 GW (net electrical) in 2020. In an optimistic case scenario, global nuclear generating capacity is expected to double to 792 gigawatts by 2050.
This would imply steady growth in demand for uranium. It’s not surprising that uranium prices have firmed up on a relative basis in the last 12 months. While I don’t expect a euphoric rally, uranium price is likely to remain in a long-term uptrend.
This is likely to be good news for uranium stocks. With several exploration and production projects on the cards, higher uranium price will boost cash flow for companies.
Let’s talk about three uranium stocks to buy as nuclear power demand increases.
Uranium Stocks to Buy: Cameco Corporation (CCJ)
As one of the leading producers of uranium, Cameco is an attractive investment to consider. Currently, the company has the licensed capacity to produce 53 million pounds of uranium concentrate annually.
Further, the company has 455 million pounds of proven and probable mineral reserves. The company also believes that it has some of the best undeveloped uranium projects in the world. There seems to be visibility for further growth in proved reserves.
For the third quarter, Cameco reported revenue of $361 million. The company placed 20 million pounds of triuranium octoxide under long-term contracts in 2021.
A report from World Nuclear Association indicates a 2.6% growth in nuclear fuel demand. Growth has accelerated from the previous estimate of 2%. As the demand for nuclear power increases, Cameco is likely to benefit.
From a financial perspective, Cameco reported $1.4 billion in cash and short-term investments. The company also has $1 billion in undrawn credit facility. With a strong liquidity buffer, there is headroom for investment in development and growth projects.
Uranium Energy (UEC)
Uranium Energy is a U.S. based uranium mining and exploration company. UEC stock is higher by nearly 52% in the last 12 months. However, the stock has corrected steeply from all-time highs of $5.80 to current levels of $2.93. This seems like a good accumulation opportunity.
In terms of assets, Uranium Energy currently has 4.1 million pounds in physical uranium portfolio. Further, resources at Wyoming are estimated at 42 million pounds.
The company currently holds 118,000 acres Wyoming’s prolific uranium producing Power River and Great Divide Basins. It seems likely that the company’s proved assets will swell in the coming years.
Uranium Energy believes that uranium demand will grow at a compound annual growth rate (CAGR) of 3.1% through 2040. Demand will be driven by the increasing need for nuclear power. As an example, China is planning 150 new nuclear reactors in the next 15 years.
From a financial perspective, Uranium Energy has a healthy balance sheet with $120 million in liquid assets. With a production-ready resource base, UEC stock looks like a potential value creator. In particular, as uranium prices remain firm. Additionally, the demand outlook for nuclear power might imply further upside in spot price.
Uranium Stocks to Buy: Denison Mines (DNN)
DNN stock also looks attractive among uranium stocks. From November 2021 highs of $2.14, the penny stock has corrected to current levels of $1.20. This seems like a good accumulation opportunity.
As an overview, Denison Mines is involved in uranium exploration and development in Canada. The company has a diversified Athabasca Basin asset base.
With interest in several strategic assets, the company has exploration potential over an area of 280,000 hectares. The company believes that it’s positioned to be among the lowest cost producers of uranium in the region.
Additionally, Denison Mines has holdings of 2.4 million pounds of uranium, which has a market value of 131 million Canadian dollar. Denison Mines also has equity investment in GoviEx Uranium (OTCMKTS:GVXXF) and Skyharbour Resources (OTCMKTS:SYHBF). This gives the company exposure to several uranium assets.
Overall, Wheeler River is likely to be a game-changing asset for the company. The asset has a net present value of $1.3 billion with an initial rate of return of 38.7%. Once production commences in the asset, meaningful upside in the stock is likely.
Denison has been active on the strategic investment front. As the company’s financial flexibility increases in the coming years, further asset acquisition will boost valuations.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.