Wednesday, January 18, 2012
Investing: Time For An Uranium Revival?
But otherwise energy is getting more and more expensive. Oil costs now around $100, around 4-times the average price of the 90s. There is a lot of speculation that the supply of this energy commodity might be endangered by political tensions (Iran conflict). Alternative energy sources like photovoltaic or wind power are still very expensive and inefficient. Therefore China, India and other nations are still expanding their nuclear power to reduce their dependence from the unreliable oil supply and to keep up with the rising energy demand in the coming years.
This week uranium stocks showed a rally. The management of Denison Mines (DNN), one of the smaller North American uranium mines, announced that it expects a 40% Y/Y increase in uranium production this year (seekingalpha.com). The company also plans to "aggressively" pursue exploration and developments projects in the U.S., Canada, Mongolia, and Zambia.
Maybe this year we will see a revival of uranium mining stocks, especially if the price of oil continues its rise and the economies in U.S and Asia continue getting stronger creating a rising demand for energy. But uranium mining stocks still have an above-average high risk because of political resistance. Some stocks like Dension Mines, are too volatile for my taste (finance.yahoo). The stock price of Dension Mines is still too close to the $1 mark. Below that it would be a penny stock, which are usually off limits. The stock of the Canadian-based Cameco (CCJ) — the world's largest uranium miner (finance.yahoo) - looks more reasonable. But this company also depends on the skill of the management and on finding and exploring new uranium resources. Special events like a water invasion in one of the mines could spoil the profit of a whole year.
Investors who want to bet on an uranium revival could buy an ETF on uranium miner stocks. I found just one pure play on this metal: The Global X Uranium ETF (URA). This ETF invests in a basket of uranium miner stocks (globalxfunds.com) (seekingalpha.com).
Investors who want to try their luck with the whole nuclear sector could buy the Market Vectors Nuclear Energy (NLR). This is a basket (finance.yahoo) (seekingalpha) of uranium miners plus stocks of energy producers who use nuclear plants like the U.S Constellation Energy Group (CEG finance.yahoo).
But these ETFs, which are diversified portfolios, are still risky because there might be a high correlation between the stocks (going the same way). Therefore I would consider these ETFs just as a cautious addition to a well diversified portfolio.
Disclaimer: I don´t own uranium stocks or other energy related investments.