Should Investors Buy the Correction in Cameco Stock?

Cameco stock (TSX:CCO) is up 71% in the last year, but has come back 10% in the last month. But not from anything the stock has done wrong.

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One of the best performing companies on the TSX today continues to be Cameco (TSX:CCO). The uranium producer is up by 72% in the last year alone, after all. That’s more than most other companies can say in that time.

However, in the last month shares have come back down slightly. Currently, Cameco stock is down about 10% from 52-week highs. So, should investors buy the dip?

What makes Cameco stock so great?

First, let’s look at why investors have been interested in Cameco stock in the first place. Cameco is one of the world’s largest uranium producers. The company engages in the exploration, mining, refining, conversion, and fabrication of uranium for sale as fuel for generating electricity in nuclear power reactors.

Cameco continues to play a crucial role in the supply of uranium. Especially with a renewable energy transition underway, with 20% of the United States dependent on nuclear power at this point alone. That’s only looking to rise in the near term.

But it’s not only the United States. Around the world countries are creating their own nuclear reactors. This includes highly populated areas such as India and China. With these also underway, and sanctions against Russian uranium continuing, major demand continues to grow for Cameco stock.

So why the dip?

Even though Cameco has seen impressive growth over the past five years, the stock price has experienced some recent downward movement, likely due to regular market fluctuations. This doesn’t necessarily reflect long-term company health. In fact, the company has transitioned from a loss to profitability in the recent years.

This came up most recently during its quarterly report back in February. Cameco reported higher sales and uranium prices pushed profit higher. The company recorded net earnings of $80 million, up from a year-earlier loss of $15 million.

Revenue also increased to $844 million, up 61% compared to the same time last year. The company managed to sell 9.8 million pounds of uranium during the quarter, up 42%. And as uranium prices surge past a 16-month high at the time, supply tightness could mean the company has even more record growth to report.

Bottom line

Shares of Cameco stock may be down by up to 10%, but that doesn’t look like it has anything to do with the company. Uranium prices are up. Production is up. And the company continues to benefit from long-term contracts that will see its clients come back for years to come.

What’s more, Cameco could be set up for decades. Uranium will power nuclear reactors, and these are going to be the key to the clean energy transition. So while the stock is down slightly, you could be looking at major returns in the next year. Even if the stock trades at high valuations as of writing. But hold long term, and Cameco stock could be the anchor that takes your growth profile into an entirely new level. 

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 recommends Cameco. The Motley Fool has a disclosure policy.

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