The Case for Buying Uranium Stocks Just Got Stronger

Cameco Corp. (TSX:CCO)(NYSE:CCJ) is a top name in an overlooked field. Could the oil price war and the coronavirus add up to uranium upside?

| More on:
Electricity high voltage pole and sky

Image source: Getty Images

Metals investors take heed. Lithium, copper, and cobalt all have their fans. But there could be another source of metals upside on the way, from a source that has long been in the doldrums: uranium. Today we’re going to talk about Cameco (TSX:CCO)(NYSE:CCJ), and why it’s suddenly a buy.

Uranium prices are looking set to rise in 2020

Nuclear power has its headwinds. But the sector could be due for a big boost. The answer has a lot to do with COVID-19 response plans.

Barrick Gold and Yamana Gold are already top names to buy because of COVID-19. The former stock could generate 85% total returns by 2025. This suggests that Barrick would be one of the best-returning metal investments if you’re going to buy just one of the currently outperforming gold names.

With all the uncertainty in the markets, it’s understandable that metal investors are piling into gold. Look at investor sentiment in the economy. Banking, a strong indicator of fear and greed, has plunged. Never mind this week’s rally. Year-on-year, Canada’s banks are in the dog house. Scotiabank is down 23%. CIBC is down 21%. TD Bank is down 17%.

Contrast this with the best gold stocks. Barrick is up 72% since last April. Newmont is up 83. Yamana Gold is up 47%. But never mind gold producers. They’re sound investments, but they’ve already had plenty of air time during the coronavirus market crash. So how about uranium, an industry that straddles metals and energy investing?

Investors have been sitting on the uranium fence, waiting for a sign. Nobody could have predicted that the sign would come from a pandemic. But Kazatomprom, the world’s largest producer of uranium, has slashed its 2020 production guidance because of the coronavirus. This is a green light for investors to start stacking up shares in names like Cameco. Why? Because output lowered by 4,000 metric tons will bolster prices.

Another case of supply outstripping demand

Kazatomprom produced 42% of the world’s uranium in 2019. The announced reduction of 4,000 metric tons is equivalent to 8% of this year’s supply. This means that producers of uranium have an opportunity for higher profits.

Just like oil, a disparity between supply and demand has been uranium’s biggest problem. The oil industry is unprofitable, which should only help the nuclear energy industry.

As one of the most productive uranium suppliers, Cameco is an especially strong play for higher uranium prices. It is a joint venture partner with Kazatomprom, with a 40% stake in their shared Inkai mine in southern Kazakhstan. Cameco has stated that the coronavirus response will include reduced operations in its mines for a projected three-month period.

The bottom line

Uranium has been an overlooked field, although big names like Bill Gates have been getting behind nuclear power lately. Could the oil price war and coronavirus add up to uranium upside? Cameco is soaring 14% this week, so investors clearly think so. Selling at book price, the stock is still a steal and offers significant upside.

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 vhetherington has no position in any of the stocks mentioned.

More on Coronavirus

little girl in pilot costume playing and dreaming of flying over the sky

Air Canada Stock: How High Could it go?

AC stock is up 29% in the last six months alone, so should we expect more great things? Or is…

Read more »

eat food

Goodfood Stock Doubles Within Days: Time to Buy?

Goodfood (TSX:FOOD) stock has surged 125% in the last few weeks, so what happened, and should investors hop back on…

Read more »

stock data
Tech Stocks

If I Could Only Buy 1 Stock Before 2023, This Would Be It

This stock is the one company that really doesn't deserve its ultra-low share price, so I'll definitely pick it up…

Read more »

Aircraft Mechanic checking jet engine of the airplane

Air Canada Stock Fell 5% in November: Is it a Buy Today?

Air Canada (TSX:AC) stock saw remarkable improvements during its last quarter but still dropped 5% with more recession hints. So,…

Read more »

Airport and plane

Is Air Canada Stock a Buy Today?

Airlines are on the rebound. Does Air Canada stock deserve to be on your buy list?

Read more »

A patient takes medicine out of a daily pill box.

Retirees: 2 Healthcare Stocks That Could Help Set You up for Life

Healthcare stocks offer an incredible opportunity for growth for those investors who look to the right stocks, such as these…

Read more »

sad concerned deep in thought

Here’s Why I Just Bought WELL Health Stock

WELL Health stock (TSX:WELL) may be a healthcare stock and a tech stock, but don't let that keep you from…

Read more »

healthcare pharma

WELL Stock: The Safe Stock Investors Can’t Afford to Ignore

WELL stock (TSX:WELL) fell 68% from peak to trough, and yet there's no good reason as to why. So now…

Read more »