Cameco Corporation: Should You Own This Stock?

Cameco Corporation (TSX:CCO)(NYSE:CCJ) has enjoyed a nice bounce off the lows. Is this the time to buy?

| More on:
The Motley Fool

Cameco Corporation (TSX:CCO)(NYSE:CCJ) has picked up a bit of a tailwind lately, and contrarian investors are wondering if the uranium giant is finally an attractive buy.

Let’s take a look at the current situation to see if Cameco deserves to be in your portfolio.

Uranium market

In early 2011 uranium traded for about US$70 per pound and Cameco was worth $40 per share.

Then the tsunami hit Japan and changed everything.

The Fukushima nuclear disaster forced Japan to shut down its entire fleet of reactors. This sent uranium prices into a downward trend that still continues today.

At the time of writing, uranium trades for US$18.25 per pound in the spot market and is only fetching US$33 on long-term contracts.

That’s a nasty slide and is the big reason Cameco can be picked up for a mere $12.50 per share right now.

Japan restarts

Japan desperately needs to get its reactors back online, but public opposition and technical problems have plagued the process. Only two of the country’s 42 usable reactors are currently producing electricity, and pundits don’t see the situation improving materially in the near term.

Global demand

The outlook is a bit more promising on a global scale. Cameco says 60 new reactors are currently under development as countries such as China and India ramp up their nuclear fleets in an effort to meet growing electricity demand. One report predicts annual uranium demand could rise 50% by 2030 as a result.

This should bode well for Cameco over the long term, but tough conditions are expected to continue through 2017. Cameco just announced plans to shut down its McArthur River mine for six weeks next summer.

Risks

Cameco is caught up in an ugly legal battle with the Canada Revenue Agency (CRA) regarding taxes owed on earnings generated by a foreign subsidiary.

If Cameco loses the case it could be on the hook for more than $2 billion.

That would be a material hit and could result in a dividend reduction as well as a nasty haircut for the stock price.

Should you buy?

The big-picture outlook for the uranium industry is positive, but uranium prices continue to fall, both on the spot market and on long-term contracts, and there is no indication a turnaround is imminent.

Add the CRA problems to the mix, and you get a situation where there really isn’t a reason to jump in and buy Cameco’s stock right now.

Contrarian investors should keep the name on their radars, but I would be careful chasing the recent rally. A better entry point could present itself in the coming months.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Walker has no position in any stocks mentioned.

More on Metals and Mining Stocks

Gold bars
Metals and Mining Stocks

Why Alamos Gold Jumped 7% on Wednesday

Alamos (TSX:AGI) stock and Argonaut Gold (TSX:AR) surged after the companies announced a friendly acquisition for $325 million.

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

If You’d Invested $1,000 in Cameco Stock 5 Years Ago, This Is How Much You’d Have Now

Cameco (TSX:CCO) stock still looks undervalued, despite a 258% rally. Can the uranium miner deliver more capital gains to shareholders?

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Stocks for Beginners

Cameco Stock and More: 3 TSX Commodity Titans to Watch in 2024

Cameco stock and these others will provide you with growth that goes beyond just a year or two, with all…

Read more »

Handwriting text writing Are You Ready For Tomorrow question. Concept meaning Preparation to the future Motivation Stand blackboard with white words behind blurry blue paper lobs woody floor.
Stocks for Beginners

3 Reasons to Buy Lundin Stock Like There’s No Tomorrow

Lundin stock (TSX:LUN) has been killing its production of copper and plans on blowing its records out of the water…

Read more »

Gold bars
Stocks for Beginners

TSX Materials in March 2024: The Best Stock to Buy Right Now

Materials have been quite volatile, though the price of gold has surged to all-time highs. That makes this stock a…

Read more »

Gold bars
Metals and Mining Stocks

Will Gold Stocks Rally in 2024?

Down almost 30% from all-time highs, Franco-Nevada is a gold mining stock trading at a discount to consensus price target…

Read more »

A miner down a mine shaft
Stocks for Beginners

Canadian Mining Stocks: Buy, Sell or Hold?

Canadian mining stocks have seemed like such a strong investment, but with shares down significantly this year, what should we…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Great News for Gold Stock Investors!

Gold has hit an all-time high! Which is good news for some gold stocks, and really good news for others.

Read more »