Is Cameco Corp. Setting Up for a Big Rally?

Cameco Corp. (TSX:CCO)(NYSE:CCJ) remains under pressure. Are better days on the way?

| More on:

Cameco Corp. (TSX:CCO)(NYSE:CCJ) is stuck in a multi-year downturn, and contrarian investors are wondering if the tough times are finally coming to an end.

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

Fukushima fallout

Cameco and its peers took a big hit during the Financial Crisis, but the situation in the market improved significantly leading into 2011.

Uranium traded at a profitable US$70 per pound, and Cameco’s stock was close to $40 per share.

Then the tsunami hit Japan and everything changed.

The Fukushima nuclear disaster forced Japan to shut down its entire fleet of reactors, and countries around the world put development plans on hold as they took a step back to evaluate nuclear power programs.

Uranium prices went into a tailspin, falling below US$20 per pound. Cameco and its peers followed uranium down, and investors can now pick up Canada’s top uranium company for about $12.50 per share.

Brighter days ahead?

Countries such as India and China are now pushing ahead with their nuclear plants in order to meet growing electricity demand, and additional facilities are on the drawing board.

In total, more than 50 new reactors are currently under construction around the world.

As for Japan, the country is trying to get the fleet back in service, but legal delays and operational challenges have hindered the process. A recent report says five of the country’s 48 operable reactors are back in commercial service.

Uranium bulls point to the strong pipeline of new construction, as well as Japan’s eventual restarts, as reasons to buy the miners.

It’s true that the sector could see a shortage in the coming years as annual uranium demand is expected to rise as much as 50% by 2030.

In addition, mining companies have delayed or scrapped expansion projects that would be needed to meet the additional market requirements. If new production doesn’t come online fast enough, there could be a uranium price spike on the way.

In the near term, however, secondary supplies are expected to keep a lid on uranium spot prices, which still trade near the multi-near lows around US$20 per pound.

CRA situation

Cameco is in a battle with the Canada Revenue Agency (CRA) over taxes owed on earnings generated through a foreign subsidiary. If Cameco loses the case, it could be hit with taxes and penalties of more than $2 billion.

A decision on the first phase of the case isn’t expected until some time in 2018 at the earliest.

Should you buy?

Cameco is a low-cost producer with great resources, so the stock deserves to be on your radar if you think the uranium market is headed higher in the coming years.

At this point, though, there probably isn’t a rush to buy. I would at least wait for the CRA situation to be settled before adding Cameco to your portfolio.

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 »