The Fukushima incident still looms large over the nuclear power industry, with uranium prices still nowhere near what they could be. But that could be about to change, with the general sentiment towards nuclear energy enjoying something of a renaissance.
Indeed, with Bill Gates, along with other high-profile commentators, chiming in to promote nuclear power as a critical, low-cost energy source amid new U.S. initiatives to boost development of nuclear reactor technologies, the sector could rise, and with it the price of uranium.
Let’s take a look at two core stocks to invest in to get in on a potential nuclear gold rush.
Split into two segments, uranium and fuel services, this worldwide producer of the radioactive metal is based in Canada and offers a geographically diversified investment with a large market share. It’s certainly well placed for a resurgence in nuclear energy and is currently good value for money.
Down 3.99% in the last five days, investors have a slight value opportunity here. Value investors may have been waiting for this moment ever since the stock jumped in September (and stayed up, for the most part) after Cameco announced that the Tax Court of Canada had ruled in its favour in a historic tax dispute.
Indeed, this stock has returned 14.4% in the last 12 months, and with a fairly healthy balance sheet denoted by debt 30% of net worth, it’s got all the hallmarks of a quality investment. A dividend yield of 0.53% is a welcome sweetener, while a 15.9% expected annual growth in earnings suggests a positive future performance.
Cameco is intrinsically undervalued, too, and if you compare its current price with its future cash flow value you’ll see a 39% difference; meanwhile, the market ratios show a somewhat different picture, with a P/E of 36 times earnings that’s more than double the TSX index itself.
Uranium Participation (TSX:U)
Stacking shares in any uranium stock with decent stats could be a route to riches in a resurgent industry. With returns of 11.9% over the last year, Uranium Participation fits the bill. Indeed, with a five-year average past earnings growth of 11.7% and past-year ROE of 26% (which is significantly high for the TSX index), this debt-free stock with a solid balance sheet is a solid buy.
Look to a P/E of 3.5 times earnings and P/B of 0.9 times book for confirmation of attractive valuation (in fact, this stock is a straight-up steal at the moment). While no dividends are on offer, and conservative estimates peg Uranium Participation for a negative expected annual growth in earnings, shareholders who buy in now and stay invested could potentially see some significant capital gains down the road.
The bottom line
Going for a pure-play uranium producer is one of the best ways to play a seismic shift in uranium sentiment. Cameco’s all-round good mix of market performance stats makes for a solid buy in this space, while its competitor listed above may be healthier but has seen lower year-on-year returns and has a negative projected earnings outlook. The real question long term, however, may be whether worldwide supplies will remain pinched enough to ensure sizable profits.
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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 Victoria Hetherington has no position in any of the stocks mentioned.