Is This Your Last Chance to Buy Cameco Corp. Under $12?

With one analyst projecting Cameco Corp. (TSX:CCO)(NYSE:CCJ) stock will hit $21, is now the time to buy?

| More on:

After a dismal run through most part of 2017, shares of uranium giant Cameco Corp. (TSX:CCO)(NYSE:CCJ) bounced off lows in November and rallied close to $13.5 before losing some ground again. Yet, the stock is still up 5% since November, indicating that the worst might be over — a sentiment that’s echoing through several analyst firms.

Just days ago, TD Securities raised its rating on Cameco stock to buy from hold and upped its price target to $21 from $14.5, backed by anticipation of a recovery in uranium prices. Could that mean this is your only chance to buy Cameco while it’s still trading cheap under $12?

Why Cameco shares surged after November

Low uranium prices proved to be the biggest hurdle for uranium producers in 2017. Cameco struggled to grow its bottom line — its revenue still grew thanks to deliveries under long-term contracts — when Japan-based Tokyo Electric Power dealt a huge blow to the company by abruptly terminating a uranium supply contract that was to run from 2017 to 2028.

With a major contract now gone and other contracts nearing expiry, Cameco had to pull up its socks and decide its course of action to survive. The company did just that in November, when it temporarily suspended operations at its largest mine, McArthur River/Key Lake in Saskatchewan, and announced a massive 80% dividend cut to prevent further cash burn.

Despite the dividend shock, investors cheered Cameco’s move, hoping that a production cut would ease the supply glut and provide tumbling uranium prices a floor. Soon after, in December, Kazakhstan — the world’s largest uranium supplier — announced its intentions to cut production by 20% over the next three years. It was just what the uranium industry wanted to hear.

What’s next?

TD Securities analyst Greg Barnes believes that supply cuts from the industry’s top suppliers could mean the bottoming of spot uranium prices. Spot uranium prices are, in fact, already started showing some signs of life, gaining nearly 10% between October and December.

More importantly, Barnes believes that the production cuts could encourage nuclear utilities to sign contracts. Investors in uranium may know that the bulk of the uranium produced is supplied to utilities under long-term contracts that can range from anything between three years to 15 years. The contract market has been dry so far, as most utilities have waited for lower uranium prices. Once prices recover, utilities should be back in the game.

Should you buy Cameco now?

Much like TD Securities, I believe the worst is over for the uranium markets. However, the recovery could be painfully slow, and investors in Cameco shouldn’t expect any substantial improvement to its top or bottom lines in the near future.

Cameco is, however, striving hard to cut costs, preserve cash, and maintain its dividend at a sustainable level. If things worsen, Cameco will have enough cash flow to sail through. If things improve, Cameco’s cost control should provide further impetus to growth. Long-term investors can enter Cameco now and enjoy its 3.5% dividend yield while awaiting a recovery. But if you want more from a stock than just bank on its yield, I’d advise you look at other stocks with better visibility into the future instead.

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 Neha Chamaria has no position in any of the stocks mentioned.

More on Metals and Mining Stocks

Stacked gold bars
Metals and Mining Stocks

Are There Any Gold Mining Stocks Still Worth Buying in July?

Barrick Gold (TSX:ABX) stock is a top-tier gold miner that's still worth a look this July.

Read more »

up arrow on wooden blocks
Metals and Mining Stocks

1 Magnificent Forever Stock Down 29% to Buy Today

Down nearly 30% from its 52-week high, Teck Resources stock is showing all the signs of a long-term winner hiding…

Read more »

Stacked gold bars
Metals and Mining Stocks

B2Gold: Buy, Sell, or Hold in July 2025?

B2Gold has churned out positive news so far in July. Here's how I'd "trade" the TSX gold stock this month.

Read more »

nuclear power plant
Metals and Mining Stocks

For My Money, This Canadian Stock Is Hands-Down the Best Play of the Decade

Here's why Cameco stock has been a growth marvel in my long-term oriented portfolio and may remain so through 2030.

Read more »

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

1 Practically Perfect Dividend Stock Down 7% to Buy for Long-term Income

If you're worried about the future of your investments, then now may be the time to grab onto a stock…

Read more »

Piggy bank and Canadian coins
Metals and Mining Stocks

Is It Too Late to Buy Silver Stocks?

First Majestic Silver (TSX:AG) and other hot silver plays could be ready for more gains in 2025.

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Stocks for Beginners

1 Magnificent Canadian Stock Down But Not Out to Buy Right Now

Don't count out this top basic materials stock, especially as copper prices soar.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Ivanhoe Mines: Buy, Sell, or Hold in July 2025?

Here's what to consider before trading Ivanhoe Mines stock this month. Watch out for July 30th!

Read more »