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Saturday, May 28, 2011
Are Uranium Stocks Already Carving Out a Bottom?
In late January, I wrote a guest article for Hard Assets Investor thatprofiled the recent breakout in uranium, and discussed potential ways to profit from the long side.
Then on cue, Japan was rocked by an earthquake that caused the largest nuclear accident in recent memory, and the price of uranium crashed. Thus thrusting my article into the contrary indicator pantheon! (Look out,BusinessWeek “Death of Equities” cover– I’m coming for you!)
In all seriousness – fundamentals WERE looking quite positive before the accident. The three-year breakout had some good old fashioned “rising demand and limited supply” characteristics that appeared to be in place for years, even decades to come.
But has this changed?
Legendary fund managerFelix Zulauf weighed in on uranium earlier this month– he thought that uranium was a BUY. Though unlikely to move up in the next two or three years, he liked the idea of using this downturn in prices to accumulate some radioactive portfolio exposure, because he doesn’t see any way for the world to meet its future energy needs without uranium.
Checking in with Mr. Market, it appears that uranium stocks, after falling out of the 50th story window, may already be carving out a bottom of sorts:
Time to accumulate some URA? (Source: StockCharts.com)
While it may be too early to declare that a bottom in uranium has been put in, it is interesting to see this fallen angel attempt to regain its composure. Now may not be a bad time to start accumulating some good uranium stocks.
The traditional way to play uranium is to buy Cameco (NYSE: CCJ), the largest and most well-known uranium miner. For some diversification, other large-cap miners to consider are Paladin Energy Ltd. (TSX: PDN) and Uranium One (TSX: UUU).
However, buying individual miners can still introduce unnecessary risk into an otherwise solid trade. There’s nothing worse than watching bad management screw up a bull market.
Therefore you can further diversify your miner-specific risk by picking up the new Global X Uranium ETF (NYSE: URA). Here’s a full list of URA’s holdings(which, not surprisingly, features our three aforementioned large-caps as its three largest holdings).