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Is There Any Reason to Invest in Cameco Corp.?

Cameco Corp. (TSX:CCO)(NYSE:CCJ) has seen its share price drop more than 25% in the past year and low uranium prices aren’t giving the stock much hope in the interim. While value investors might see a stock trading at under book value as a good buy, that may be the only reason to buy the stock.

A poor Q4 wraps up an abysmal year

Earlier this month, Cameco released its fourth quarter results, which showed sales declining 9% from a year ago and the company finishing in the red for the fifth consecutive quarter. Although the quarter wasn’t as bad as Q3 was, the company still faces a big uphill battle in trying to convince investors that the stock is still a good buy.

The one positive that investors can take from the quarter is that the loss of $62 million was an improvement from the $144 million loss that it recorded a year ago.

Uranium prices show no increase despite supply cuts

Back in December, there was hope that supply cuts by both Cameco and KazAtomProm, the world’s largest uranium producer, would help push uranium prices up the way supply cuts have helped support a higher price of oil.

Unfortunately, we’ve yet to see that happen, and the price of uranium has dropped for the second straight month after briefly climbing to US$23/lb. in November.

Without a higher price of uranium, it’s hard to see how Cameco will be able to get back into the black. While it may take some time for the supply cuts to produce the desired effect, at this point it’s hard to see a light at the end of the tunnel. Until we see more reactors come online and more demand for uranium, it’s going to be a waiting game for investors.

Why it isn’t all doom and gloom

While it may be tempting to pass on the stock and not bother with the risk given the company’s decline, it could have a lot of upside for investors willing to take on some risk.

For one thing, Cameco continues to accumulate strong cash from its operations. In the past year, despite posting a loss of $205 million the company was able to accumulate nearly $600 million in cash from operations, with a big cut to its dividend that will ensure the company’s cash position is that much stronger.

Another reason why Cameco might still be a good buy today is that the stock has seen fairly strong support at $11, even during the past year when things have looked hopeless. Many investors realize that Cameco is positioning itself to capitalize when uranium prices will inevitably recover and are not ready to sell off the stock just yet. The big problem is that it’s anyone’s guess as to how long that might take.

Bottom line

Cameco is doing what it can in very difficult times, but without a higher price of uranium, staying out of the red will prove challenging. While there may not be a great reason for investors to buy the stock today, this is definitely one to keep a close eye on, as it could take off once conditions in the industry improve.

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Fool contributor David Jagielski has no position in any of the stocks mentioned.

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