Millions of Canadians are concerned about the future.
A recent survey showed that more than half of Canadians are either “extremely” or “definitely” concerned about a changing climate. Nearly 80% fear for the prosperity of future generations. Other surveys show that Canadians are also more worried than ever about housing affordability, identity theft, employment opportunities, and more.
If you’re worried about a changing world — or at least want to bet on others becoming worried — Uranium Participation (TSX:U) stock deserves your attention.
This is a unique opportunity
To protect themselves from domestic and global uncertainty, many investors turn to hard assets like gold, silver, and oil. While these assets have provided downside protection in many cases throughout history, they’ve also shed massive amounts of value based on idiosyncratic factors.
Take oil for example. In 2014, when equity markets were continuing their historic run, many investors bought into oil ETFs to diversify their equity investments. Due to the specifics of the oil markets that year, this ended up being a terrible move.
That year, the U.S. proved that it could produce huge volumes of oil at a price of $40 per barrel or less. With oil prices above $100 per barrel, the U.S. became the new marginal producer. Oil prices that year fell by more than 50%.
So, the lesson is clear: investing in hard assets can offer unique forms of diversification, but if the story isn’t right, you could end up losing big.
This lesson is what makes Uranium Participation so appealing. Not only do you get direct exposure to a hard asset (uranium), but the underlying story is incredibly attractive.
Get ready for a ride
As with any hard asset, uranium prices have seen their ups and downs.
For decades, uranium prices hardly budged. Then from 2004 to 2008, prices jumped by more than 500%. By the time 2008 came around, the stock market was fully invested in the “China Story,” which essentially believed that the country would consume more and more hard assets for decades to come.
The financial crisis of 2009 put an end to that story, as prices slid more than 50%. The Fukushima disaster of 2011 continued the bear market for uranium given the massive outcry against nuclear power. Prices still haven’t recovered.
Still, there’s reason to believe a recovery is just around the corner. Because Uranium Participation simply buys uranium and stores it for later use, investors will get direct upside to any jumps in pricing.
Why might prices improve soon?
The main culprit is the death of long-term contracts. Following the financial crisis and Fukushima disaster, most nuclear power companies avoided entering long-term contracts. The regulatory environment has simply been too opaque to commit to a supply contract of 10 years or more.
Over the next couple years, however, those contracts will need to be renewed en masse. Starting in 2019, the supply and demand gap for uranium will also begin to grow. If nuclear power companies rush to renew contracts, the conditions will be ripe for a big price spike, directly enriching Uranium Participation shareholders.
In total, Uranium Participation provides you with the best of both worlds: exposure to a hard asset that can resist a global downturn and a timely story that could provide ample upside.
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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 Ryan Vanzo has no position in any stocks mentioned.