Cameco Corp. Upgraded: Is the Stock Ready to Explode?

Cameco Corp. (TSX:CCO)(NYSE:CCJ) was recently upgraded by BMO Capital Markets. Is the uranium market set to explode?

| More on:
The Motley Fool

Cameco Corp. (TSX:CCO)(NYSE:CCJ) is finally beginning to see some upward momentum after many years of underperformance. BMO Capital Markets recently upgraded the stock to outperform as the macro outlook for uranium prices is improving, and it appears the downside from current levels is limited.

There’s no question that the stock has been in a house of pain for a ridiculously long time. It’s one of the few stocks that would crush you if you’d held the stock for the long term. Is Cameco capable of becoming great again? The stock is dirt cheap, and there looks to be a fair margin of safety right now.

Edward Sterck, an analyst, raised his target price to $18 from the original $17. His reasons were that there’s likely to be an improving uranium market which will be a positive catalyst that will propel the stock higher. Sterck also believes that the supply contract dispute with Tokyo Electric Power Company Holdings Inc. (TEPCO) will be solved via arbitration and cash flows will improve in the future.

Uranium prices are close to historic lows. Uranium went out of favour across the globe after the Fukushima disaster. But it appears that countries are starting to consider using nuclear power again.

China and India are two huge markets that have a gigantic demand for energy. Both countries have expressed interest in using nuclear power going forward, and this could cause uranium demand to skyrocket over the next few years. There are 60 power plants under construction across 15 different countries, so there’s no doubt there will be an increased need for uranium, and Cameco will be a big beneficiary of this trend.

It probably doesn’t make much sense for Japan to continue to use nuclear reactors since the country is in an earthquake zone, and this is a big reason why Japan is canceling its contract with Cameco. The Japanese government put forth regulations that will make it very difficult to operate nuclear power plants going forward. Cameco could lose $1.3 billion in revenue if the contract is canceled, but I don’t believe investors should be worried, as there are many other countries that will need a huge supply of uranium over the next five years.

Cameco is ridiculously cheap with a price-to-book multiple of 1.1 and a price-to-sales multiple of 2.4, both of which are lower than the company’s five-year historical average multiples of 1.5 and 3.1 respectively. There’s not much downside from current levels, and things are looking brighter over the next few years, so investors can feel comfortable owning shares.

But if another nuclear disaster happens, we could see history repeat itself and the entire world will go into a panic, driving uranium prices and Cameco stock back to the floor.

If you’re bullish on nuclear energy and have a long-term time horizon, then buy Cameco and collect the 2.5% dividend yield while you wait for shares to rebound.

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 Joey Frenette has no position in any stocks mentioned.

More on Investing

thinking
Dividend Stocks

Should You Buy BCE Stock for its 8.6% Dividend Yield?

Down over 20% from all-time highs, BCE stock offers you a tasty dividend yield in 2024. But is the TSX…

Read more »

grow dividends
Tech Stocks

Why Nuvei Stock Jumped 26% on Monday

Nuvei (TSX:NVEI) stock saw shares surge today as the company confirmed it's in talks to go private through a buyout.

Read more »

consider the options
Investing

Better Buy for the Dividend: Enbridge or Nutrien?

Enbridge (TSX:ENB) and Nutrien (TSX:ENB) are great dividend plays for new investors going into April.

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 »

grow dividends
Dividend Stocks

How Long Would It Take to Turn $20,000 Into $100,000 With TSX Dividend Stocks?

Here's how high-quality TSX dividend stocks and the power of compound interest can help grow your investments by 400% or…

Read more »

Happy diverse people together in the park
Tech Stocks

A Once-in-a-Generation Investment Opportunity: Artificial Intelligence (AI) Growth Stocks

Canadian tech companies like Kinaxis (TSX:KXS) are doing big things in AI.

Read more »

Paper airplanes flying on blue sky with form of growing graph
Dividend Stocks

2 Soaring Stocks I’d Buy Now With No Hesitation

These two stocks may be the most expensive on the market, but they're high for a reason! And I'm still…

Read more »

Arrowings ascending on a chalkboard
Investing

This Canadian Blue Chip Is Trouncing TSX Returns, and It Still Has Room to Run

Alimentation Couche-Tard (TSX:ATD) stock looks quite frothy heading into earnings, but there may still be upside.

Read more »