Uranium Stocks: Ready for a Breakout?

Uranium mining stocks like Cameco Corporation (TSX:CCO)(NYSE:CCJ) could be ready for a breakout.

| More on:
Question marks in a pile

Image source: Getty Images

Few sectors are trendier these days than uranium mining. The world is in the midst of an energy crisis, and nuclear energy seems like the perfect solution. On Tuesday, Germany reported a 46% increase in Producer Price Index inflation (inflation to businesses rather than consumers), and a lot of it was due to energy prices. In response to this crisis, the European Union has been loosening regulations. For example, last month, it passed a law that allowed energy companies to label nuclear plants as “green.”

All of this appears bullish for uranium miners. Uranium prices have been steadily climbing this year, driven by tight energy supplies and the renewed popularity of nuclear energy. If this continues, then investors could get wealthy. The question is, will it continue? And if so, what reasons do we have for thinking that it will?

Why uranium is becoming more and more important

Uranium is becoming more and more important because other energy sources are in tight supply. Russia is withholding Europe’s supply of natural gas, which has led to energy price inflation. In the meantime, other countries are still dealing with supply chain issues, such as lockdowns in China that are disrupting shipping. Oil, as a commodity that has to be physically transported, is vulnerable to continued inflation as long as the global situation continues as it has been.

In the midst of all this, uranium is standing tall. It only takes a few tonnes of uranium to fuel an entire city, a supply that can be mined in a few days. On top of that, nuclear energy produces zero carbon dioxide emissions, so it’s good for the environment. It certainly looks like nuclear is the fuel of the future, and some countries are embracing it. For example, Japan is ramping up its nuclear production, and Germany is even considering changing course on its nuclear power plant shutdowns.

Why it might not be as great as some think

It’s definitely true that nuclear energy is going to be part of the grid of the future, but that doesn’t mean that uranium is a boon to investors. To the contrary, it may disappoint. The problem is that uranium’s practical virtue is its business drawback: it takes so little of it to fuel a city that uranium will likely never be an enormous global market like oil is now. The amount needed to fuel an entire city can be mined in a few days. So, countries won’t be buying more and more of it every year like they do with oil today.

A uranium mining stock

Assuming the preceding paragraph doesn’t deter you, Cameco (TSX:CCO)(NYSE:CCJ) stock is one you might want to take a look at. It’s a Canadian uranium miner that supplies fuel for nuclear power plants. It is benefitting from this year’s rise in uranium prices. For example, in its most recent quarter, it delivered $557 million in revenue, up 55%, and $84 million in earnings, up 328%. It was a solid showing, and as long as uranium prices keep going up, investors can expect more of the same.

Bear in mind the risks, though: uranium is a commodity that varies in price like any other. If the energy crisis gets solved, expect Cameco’s earnings to dip.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

A worker gives a business presentation.
Dividend Stocks

TSX Communications in April 2024: The Best Stocks to Buy Right Now

Here are two of the best TSX communication stocks you can buy in April 2024 and hold for years to…

Read more »

Man holding magnifying glass over a document
Tech Stocks

Watching This 1 Key Metric Could Help You Beat the Stock Market

One key metric that Buffett looks at is the return on equity. Here's why you should watch it.

Read more »

Man considering whether to sell or buy
Dividend Stocks

Royal Bank of Canada Stock: Buy, Sell, or Hold?

Royal Bank of Canada (TSX:RY) has a high dividend yield. Should you buy it?

Read more »

oil tank at night
Energy Stocks

Is Suncor a Buy, Sell, or Hold?

Suncor Energy stock is off to a strong start in 2024. Is the TSX energy stock a good buy right…

Read more »

Daffodils in bloom
Tech Stocks

2 Best “Magnificent Seven” Stocks to Buy in April

Two surging mega-cap tech stocks are the best buys among the “Magnificent Seven” this April.

Read more »

A golden egg in a nest
Stocks for Beginners

Got $5,000? 5 Stocks to Buy for Lasting Wealth

Got $5,000 to build a long-term compounding stock portfolio? Here are five top Canadian stocks to building lasting lifetime wealth.

Read more »

Businessman looking at a red arrow crashing through the floor
Dividend Stocks

BCE’s Stock Price Has Fallen to its 10-Year Low of $44: How Low Can it Go?

BCE stock price has dipped 39% in two years and shows no signs of growth in the next few months.…

Read more »

Dollar symbol and Canadian flag on keyboard
Dividend Stocks

Invest $10,000 in This Dividend Stock for $3,974.80 in Passive Income

This dividend stock gives you far more passive income than just from dividends alone, so consider it if you want…

Read more »