"China" and "nuclear" may not be a combination investors want to think about, however if you are ignoring the couple you are missing out on an investment opportunity. In November, China announced that by 2020 it intends to generate 7% of its power from nuclear energy, accounting for 112 gigawatts; this projection is up from its prior guidance of only 70 gigawatts. China currently has 11 reactors running with another 28 under construction. The U.S. on the other hand has 104 in operation.
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A deal announced in early December will result in a Russian state-owned company moving into the U.S. uranium sector that will eventually result in the company operating up to half of the U.S. uranium output. The 51% state of Uranium One (NYSE:UUU.TO) that was acquired by Russian company ARMZ is the deal that raises the eyebrows of many.
As the world moves towards greener energy, the nuclear power option must be taken into consideration. Considering that one pound of uranium generates the equivalent of 20,000 pounds of coal and the carbon footprint is much less, nuclear power can't be ignored. (For more, see Energize A Nuclear Portfolio With Uranium Miners.)
The ARMZ/UUU deal has sent the price of UUU up from $2 in May to a recent high of $5.75 in December. The other uranium stocks in the sector have also experienced big moves as has the price of the uranium futures, rallying approximately 50% since the summer. Even though the stocks have moved, I feel there is more upside potential over the long term for the sector.
Uranium Stock Plays
The big player in the sector remains Cameco (NYSE:CCJ), a Canadian-based company that produces 16% of the world's uranium, making it one of the largest in the world. The stock has operations mainly in the U.S. and Canada, but it is beginning to grow its operations in Australia. Technically CCJ is at a two-year high and has nearly doubled from the early July low. Fundamentally, the forward P/E ratio sits at an acceptable 28.8.
Denison Mines (NYSE:DNN) is much smaller than CCJ, but it is one of the few players with a market capitalization over $1 billion. The Canadian-based company explores and develops uranium mines in the US and Canada. After the stock began trading on the NYSE in 2007 the stock fell over 90% before bottoming out and since the uranium rally began in July, the stock is up over 200%.
If investors want to play the "junior" uranium stocks that have market capitalizations below $500 million, there is URRE that was mentioned earlier as well as a few others. (For more, see Catching A Lift On The Penny Express.)
Uranerz Energy Company (NYSE:URZ) is an exploration stage company that is focusing on the Powder River Basin area in Wyoming. The company also has interests in Texas and Canada. The company is based in Wyoming.
UR-Energy (NYSE:URG) is a development stage company that is exploring for uranium in 12 properties located in the U.S. and Canada.
Uranium Sector ETF
Finally, for the investor that is too timid to take the risk on a single uranium stock but who would like to gain some exposure to the sector, there is the Global X Uranium ETF (NYSE: URA). The ETF is composed of 23 stocks based mainly in Canada, Australia, and the U.S. CCJ is the largest holding (20%) and the top-10 stocks make up 77% of the portfolio. The annual expense ratio is 0.69%.
The Bottom Line
The uranium sector is not for all investors. There will be wild swings from month to month; however, the long-term outlook for the demand of the commodity appears to be solid. As long as more reactors continue to come online, it should be enough to keep the price of uranium and the related stocks in the uptrend. (For more, see Should You Buy Stock Or An ETF?)
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