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Is Cameco Corp. a Growth Stock in Hiding?

Cameco Corp. (TSX:CCO)(NYSE:CCJ) is often mentioned as an intriguing opportunity for long-term investors based on the premise that Cameco’s uranium mining woes will eventually recover and reap significant rewards for investors.

While there is still a case for that becoming reality, could Cameco not just be a recovery candidate, but pose as a serious contender for a long-term growth pick?

Here are a few reasons to contemplate your investment.

The Fukushima fallout has passed

Prior to the Fukushima disaster in 2011, uranium was trading at nearly US$70 per pound, and countries around the world were seriously considering nuclear power as a feasible option to attain cheap and clean power for growing economies.

When the Fukushima reactor was damaged by the tsunami that year, demand for uranium and, by extension, nuclear power all but evaporated, leaving Cameco and other miners with a product that was losing value and nobody wanted.

Japan was one of the largest users of nuclear power, but in the weeks following the accident, the country shuttered all of its reactors, and only began restarting some of them earlier this year.

While the price of uranium still remains weak, an emerging renaissance in nuclear power is starting to emerge. China and India are leading that charge with aggressive infrastructure projects that will prove taxing without a massive uptick in power generation that only nuclear power can provide.

As a result, those two countries account for nearly half of all the nuclear reactors currently under construction on the planet and have equally aggressive plans that call for more reactors to be constructed over the next two decades.

That flurry of construction should not only clear supply gluts but provide a stable source of revenue for Cameco.

The uranium price drop was overstated

One of the most concerning points of discussion for investors has always been the drop in uranium prices and the impact that has on Cameco’s bottom line and future operations.

While the drop in demand and price did coincide with an uptick in supply, there’s plenty of reason to be optimistic about Cameco, particularly over the long term.

As demand dried up and prices dropped, Cameco began to streamline operations and prioritize lower-cost facilities over the more expensive ones. In some cases, this led to Cameco shuttering some facilities, but the cost savings helped the company weather the environment of depressed prices.

Fortunately, Cameco was somewhat shielded by the drop in uranium prices thanks to the long-term contract pricing the company had in place. Many of those contracts can span upwards of a decade, meaning that the price Cameco is receiving for the uranium delivered to clients is still significantly higher than the current market value.

This has helped Cameco not only maintain but grow its free cash flow and maintain its current quarterly dividend to shareholders. That dividend has remained one constant factor in the years since both uranium prices and Cameco’s stock price dropped, resulting in the current 3.54% yield.

Should you invest in Cameco?

Cameco represents a significant growth opportunity, but it may not be for all investors. If you can tolerate the risk and can forget about short-term fluctuations and weakness in the uranium market, then an investment in Cameco might be worth considering, which also means benefiting from that 3.54% yield while waiting for that recovery.

Investors that are looking more at a shorter investment time line may be better served by passing on Cameco in lieu of another investment.

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Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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