(C) Reuters. 3 Reasons Uranium Stocks are Surging
Uranium stocks, which once inhabited a fairly sleepy corner of the market, are suddenly seeing a deluge of investor interest. Many of the stocks in this niche sector have been seeing double-digit percentage gains on a seemingly daily basis as new capital pours into the space.
Fears that the Evergrande situation in China will spill over to the broader market and hamper commodity demand in China have cooled the rally for a few days – but many names in this sector are still up 100% or more over the past year after this selloff. What’s behind this surge in uranium stocks, and could this be just the beginning of a more secular trend?
Sprott Fund Shakes Up the Space
The immediate catalyst that has electrified the sector is the launch of the Sprott Physical Uranium Trust Fund (SRUUF, U.U-TO). Sprott is a well-known player in the commodities and precious metals space, with well-known investment vehicles like the Sprott Phyiscal Gold and Silver Trust (CEF) under its banner. This is a multi-billion dollar fund, so the $1 billion uranium fund is small in comparison. However, it is a big entrant into the relatively smaller uranium market.
The fund has quickly gained traction with investors, so new units are issued and the proceeds are used to buy more physical uranium. This increased demand thus drives up the spot price. A spot price is the current price at which an asset can be exchanged for immediate delivery.
It is no coincidence that the introduction of the Sprott fund has marked the highest uranium spot prices seen in years. The difference between these Sprott funds and their contemporaries is that they take physical delivery of the commodities that they buy. Sprott’s uranium fund has introduced a new buyer into a previously quiet ecosystem where there was relatively little action aside from utilities and a few hedge funds.
The Sprott fund has breathed new life into the sector in the short term. Longer-term, the investment community is waking up to the reality that nuclear energy is going to have to be a part of the solution if the world is going to meet its goals of stopping climate change. Wind and solar energy will not be sufficient as global demand for energy will rise substantially in the decades to come.
Sprott foresees global electricity demand rising 49% over the next 20 years. Population growth, coupled with a rising standard of living in emerging markets, will continue to drive energy demand. With wind and solar alone not enough to keep up with current energy needs, let alone with this new demand coming online for decades to come, nuclear energy will have to be a part of any realistic climate solution.
Because the price of uranium has been in a rut for the last decade, many existing uranium mines were decommissioned or put into care and maintenance, constricting supply. While some mines under care and maintenance can be restarted to take advantage of the higher prices to meet demand, this is not an overnight fix. It is a multi-year process to get new mines permitted and operational, so the supply/demand mismatch looks like it will stay in favor of the uranium miners for the foreseeable future.
New Interest from Reddit’s WallStreetBets
Additionally, uranium has caught the eye of Reddit’s WallStreetBets community – Cameco (NYSE:CCJ), the largest and most heavily traded uranium name, was the third-most mentioned stock (APPL) and Alibaba (NYSE:BABA). Therefore, I am bullish on CCJ stock.
Interest from this group of retail investors is simply adding fuel to the fire. At this point everyone is well aware of how this active and vocal community has used its collective mind to move bigger stocks before. Most uranium names are small, thinly-traded equities, so an influx of retail interest could have a pronounced impact.
The analyst rating consensus on CCJ stock is a Moderate Buy, based on 5 Buy and 4 Hold ratings. Average Cameco Corp . price target is $24.78, implying an upside of 13.2%.
This often-overlooked section of the market is enjoying a new moment in the sun. Given the long-term supply and demand situation, and the growing realization that nuclear energy has to be a part of the world’s renewable energy mix if climate change goals are to be achieved, this short-term spotlight could just be highlighting the long-term opportunity that exists, as uranium names enter the mainstream for the first time in over a decade.
Generalist investors will find that individual companies trade at various levels of liquidity on a variety of exchanges. These equities can vary widely in terms of asset quality and how close they are to production. Therefore, these investors can consider ETFs like the North Shore Global Uranium Mining ETF (URNM) or the Global X Uranium ETF (URA). They can also take a look at the aforementioned Sprott Physical Uranium Trust (SRUUF, U-U.TO) which trades in Canada and over the counter in the U.S. Keep in mind that this is a bet on the commodity itself, as opposed to the aforementioned ETFs, which focus on the uranium miners.
Cameco (CCJ) is the largest and most liquid, heavily-traded stock for U.S.-based investors. Other U.S.-listed names that trade with reasonable liquidity on the NYSE American exchange include NexGen Energy (NYSE:NXE) and Denison Mines Corp. (NYSE:DNN). Investors who are interested in gaining exposure to this space have more options than ever before.