Uranium Stocks – Time to Buy?
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Nuclear power is all the rage these days. The world is in an energy crisis, and countries are rushing to go nuclear in response. Just recently, the European Union (EU) voted to allow companies to describe nuclear energy as “green”. It was a bold step towards nuclear adoption for a continent that until recently had largely abandoned it.
For investors, this situation presents interesting opportunities. There are many ways to invest in nuclear energy, both directly in nuclear power plants and indirectly in the form of uranium. Last week, research firm Breakthrough Institute released a note touting nuclear power’s ability to help the environment and enrich investors. In this article, I will explore uranium stocks and analyze whether they are worth investing in.
Why nuclear is in fashion
Nuclear power is in vogue right now because of the energy crisis the world is facing. There is not enough oil for everyone and renewable energies do not make a difference. In such a situation, it is natural to turn to nuclear power, and many countries are doing so. The price of uranium has doubled since the start of 2018, likely due to the growing number of countries adopting nuclear power. In addition to EU nuclear membership, Japan has also recently pledged to restart several nuclear reactors, more than a decade after the notorious Fukushima incident there.
Getting out of fossil fuels is a top priority for world leaders. So far, most efforts in this area have focused on renewable energies like wind and solar. Renewable energies are used in several countries, but rarely at a sufficient level to power entire networks. For this kind of green energy, we need nuclear power, which is gaining popularity after years of being considered unsafe.
The obvious way to play nuclear power is to use uranium stockpiles. Uranium is the fuel used in nuclear reactors. Many companies that produce uranium are publicly traded, which means you can invest in them.
Take Cameco (TSX:CCO)(NYSE:CCJ), for example. It is a Canadian uranium mining company that supplies fuel for nuclear reactors around the world. The company has:
- 464 million pounds of proven uranium reserves.
- 30 million pounds annual uranium production.
- Positive net result.
These are all desirable and promising characteristics. However, Cameco’s long-term growth has not been as significant. Over the past decade, Cameco’s revenues have fallen rather than grown, and it’s the same story with profits. This is partly explained by the lack of interest in nuclear energy in recent years. After the Fukushima reactor incident, few countries launched new nuclear projects. That’s changing, so maybe Cameco will do better in the future.
However, uranium mining will probably never be a thriving industry like oil and gas is today. The amount of uranium needed to power a city is nothing compared to the amount of coal needed to do the same. Sure, the demand for uranium will increase, but it’s so plentiful compared to oil, it doesn’t look like an industry that’s going to produce explosive profits. Scientists say there is enough uranium in the oceans to meet humanity’s energy needs for 60,000 years. Uranium is therefore very useful, but it is not exactly a scarce commodity.
For me, the most interesting nuclear games are electric utilities that operate nuclear power plants. There are publicly traded defensive stocks like duke energy (NYSE:DUK) that fit this description. They allow you to share in the profits of nuclear power generation, but with income stability far beyond what a mining operation could ever have. However, being utilities, they operate in limited service areas which have regulated tariffs. This results in slow and steady revenue growth rather than explosive growth, as can be the case with upstart mining companies. For example, Duke’s revenue growth rate this year is 8.5%, which is okay, but not amazing. Owning a stock like Duke Energy isn’t as romantic as owning a uranium mine that solves the global energy crisis, but it might be a bit more practical.