Why Cameco Stock Rose 22% in January 2023: Should You Buy Now?

Cameco (TSX:CCO) stock may be up right now, but how long can that last if uranium proves to be a finite resource?

| More on:
Engineers walk through a facility.

Source: Getty Images

Shares of Cameco (TSX:CCO) rose about 22% in January alone, with the start of the year doing quite well for the uranium company. After a year of volatility from retail traders pushing the stock higher before selling it off, investors are now hoping that it’s safe to purchase Cameco stock once more.

But there’s a lot to consider here. While an investment over the next few years could be a strong one, a long-term one isn’t as certain. So, let’s look at why Cameco stock is climbing and whether investors should continue picking up the stock.

Why investors are buying Cameco stock

There are a few reasons investors are considering Cameco stock on the TSX today. There is, of course, the most obvious reason: it’s the world’s largest publicly traded uranium producer. The world needs uranium, and not just in the future but right now. About 20% of the United States already depends on nuclear power. So, it’s a very real necessity that the world demands.

That demand is only climbing higher, with countries around the world creating more and more reactors. After the Fukushima disaster had deadly consequences. Shares in the company collapsed. But over a decade later, the need for clean power remains in high demand. So, Cameco stock will need to keep up with it in the next few years.

But how long can that last?

Uranium forever?

Here’s the problem: uranium isn’t an infinite resource. Eventually, humans will have to come up with a renewable energy process — not just a clean one. This is why the price of uranium continues to climb higher and higher. Cameco stock may be pumping it out at all cylinders, but it’s eventually going to have to go into its reserves. Because it’s a finite resource, there is a point when we simply won’t be able to mine enough to power the needs of the world.

Because of this, nuclear power is more of a bridge power. It will help bridge the gap between oil and gas power of the past, and the renewable energy of the future. So, while Cameco stock might do well for now, and especially with more investment announcements into nuclear power, it won’t do well forever.

Does that matter if you’re investing for the next few years then? That’s where we have to identify whether this is a valuable buy or not.

An expensive play

Cameco stock is expensive no matter how you look at it on the TSX today. Shares are up 22% in the last month and 54% in the last year. Yet in that time, it’s bounced around like a yo-yo. In fact, its ticker looks like the world’s deadliest roller coaster.

It currently trades at a whopping 128 times earnings as of writing, and the company doesn’t have much in terms of a dividend. Why would it when it needs the cash to continue meeting demand? Yet there’s one area that doesn’t really care if it’s expensive, and that’s through the investment of financial institutions.

These are the backers pushing shares higher, with about 63% of Cameco stock owned by financial institutions. They’re looking to create returns in the short term but could just as easily put it somewhere else in the future. So, investors should seriously watch out and perhaps stay away from Cameco stock for now — at least until it gets back to value territory.

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 Amy Legate-Wolfe 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 Metals and Mining Stocks

growing plant shoots on stacked coins
Stocks for Beginners

1 Copper Stock to Buy as Copper Prices Shine

The price of copper continues to climb, and more copper production is on the way for this top stock up…

Read more »

silver metal
Metals and Mining Stocks

Buy the Dip: 1 Dividend Stock Due to Shine

This dividend stock's dividend just rose higher as the price of silver dropped, but don't let that scare you off…

Read more »

Metals and Mining Stocks

Iron Stomach? 2 Riskier Stocks That Could Pay Off Big Time in the Future

Two TSX stocks could deliver greater earnings to investors with higher risk appetites.

Read more »

Gold bullion on a chart
Metals and Mining Stocks

This Gold Stock Just Dipped 5%: Time to Buy?

This gold stock has been rising higher and higher but recently went through a 5% dip in share price. So,…

Read more »

Gold king in chess game face with the another silver team on black background (Concept for company strategy, business victory or decision)
Stocks for Beginners

Pan American Silver: Buy, Sell, or Hold?

PAAS stock (TSX:PAAS) is up 44% in the last year alone! But it's not all down to the rise in…

Read more »

Nuclear power station cooling tower
Metals and Mining Stocks

1 Canadian Mining Stock Worth a Long-Term Investment

Strong fundamentals should continue to boost Cameco stock's long-term outlook, as the nuclear industry's momentum continues.

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Lundin Mining Stock: Buy, Sell, or Hold?

Lundin (TSX:LUN) stock saw its shares surge this last year with the price of copper, and more strong guidance could…

Read more »

grow dividends
Metals and Mining Stocks

Invest $5,000 in This Dividend Stock for $1,060 in Passive Income

Franco Nevada stock trades at a 20% discount to consensus price target estimates while offering investors a tasty yield of…

Read more »