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Martin’s “Final Warning” on Monday, reaching readers one day before yesterday’s 280-point plunge in the Dow, came just in the nick of time — especially for all those investors who needed a little extra shove to start acting on his urgent recommendations.
The key is this: While sick sectors of the stock market, like real estate and mortgage lenders, are taking a pounding because they deserve it, other sectors are getting thrown out with the bath water and are soon going to be great bargains.
Take uranium, for example.
In the most recent week, the per-pound price fell to $90. That means the metal is down about 34% from its peak in June.
This action is weighing on uranium stocks, too. More on why I think now is the time to start buying in a moment. First, let’s talk more about the metal itself …
Where Are Uranium
Prices Going From Here?
The recent tumble in the spot price puts it below the long-term contract price of $95 per pound. I think that fact should help support the spot price from falling much farther.
Now, here’s another thing to consider: When uranium prices were hitting a new low, the Uranium Participation Corp, a fund that invests in physical uranium, was actually rallying.
How could that happen? Could it be that the smart money thinks uranium prices are bottoming?
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Looking at a weekly chart, you can see how the Uranium Participation Corp tested support levels from a year earlier, then bounced higher.
Could we see more selling? Sure. But based on momentum, the fund looks oversold, which should help limit downside.
The Fundamentals Argue for
Higher Uranium Prices, Too …
There are 438 nuclear power reactors around the world, according to the World Nuclear Association. There are 32 more under construction, 74 on order or planned, and 214 proposed.
Reactors typically require a first fill of around 600 metric tonnes of uranium and then consume around 200 tonnes per year.
In the U.S., where 103 operational nuclear power plants provide 20% of the country’s electricity, reactors that have met the end of their normal 40-year operating license are being granted extensions, and the U.S. Department of Energy is pushing incentives encouraging power corporations to build new reactors in an attempt to stave off an energy shortage.
UX Consulting says existing nuclear power plants used 173 million pounds of uranium in 2006, while supply from mines was 103 million pounds. This 70-million-pound gap was filled by sales from stockpiles.
Add in the 32 new plants this year and that’s more than a 7% increase in demand. Factor in those already on order or planned, and that’s a whopping 24% increase in demand!
But wait … the shortfall gets even bigger once you take into account the projected decline in the amount of uranium available from decommissioned nuclear weapons over the next 20 years.
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| While there’s a lot of uranium in this picture, we’ll need a whole lot more to meet current demand! |
About one-third of the uranium used in the U.S. comes from old Russian nuclear warheads under the Megatons-to-Megawatts program. The Russians have said they won’t renew the agreement when the program expires in 2012. Why? They need the fuel for their own plants and they’re sick of selling it cheap.
I haven’t even mentioned the production delays, either. Global uranium output from mines will probably come in at 112.1 million pounds of yellowcake this year, down from earlier estimates of 117 million pounds. That’s five million pounds of production that’s getting pushed back from this year until next. And it’s likely that we will see delays then, too.
So you see, supply simply cannot keep up. In fact, as tight as the uranium supply/demand squeeze is now, most analysts expect it to get much worse after 2010.
Why Uranium Stocks Got Crushed,
And Why They Now Look Attractive
So with the long-term fundamentals still intact, what’s going on in uranium stocks? Why have many of them been chopped by 40%, 50% or more?
Many market watchers are citing a sale two weeks ago by the U.S. Department of Energy for the latest dip in prices. The DoE sold 200 metric tonnes of uranium hexafluoride (UF6). That’s equivalent to 519,000 pounds of yellowcake. But that’s not enough uranium to fully start up even one new nuclear reactor!
Of more significance, is a piece of data that we got last month: According to TradeTech, demand from utilities for fueling nuclear reactors fell 72% since peaking April 6.
As of the second week of July, 3.4 million pounds of uranium was available, more than three times the amount purchased by power companies, TradeTech said.
I think this is happening because utilities sense market weakness and believe they can get lower prices down the road. But all those deferred purchases are just piling up. Boy, talk about a strategy that could come back to bite them in the butt!
Also, summer is the traditional slow season while September and October are the traditional ramp-up months. So this short-term over-supply could be eaten up quickly.
The bursting of the credit bubble and the ensuing liquidity crunch has just pushed uranium stocks even lower. Investors believe borrowing costs will rise for small companies that aren’t yet producing and for producers that want to expand or buy up rivals.
Meanwhile, speculators in the market, especially hedge funds, are liquidating positions across the board to cover the bad bets they made in the mortgage and corporate debt markets.
End result: I think uranium stocks are now selling at an incredible discount!
Let me put it this way: If the uranium bull market were a baseball game, we’d probably be in the third inning. In other words, there is a long way to go.
How to Target Your Own
White-Hot Profits
It’s often said that you can grab the biggest prizes when everyone else has burned fingers. And the uranium sector has been scorched but good!
Let’s look at a chart of one of the stocks in my original Golden Age of Uranium Report — Denison Mines.
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In May, I told readers to take gains on this stock, which was up more than 150% from my initial recommendation.
Good thing, because the stock skidded lower after that!
But now Denison appears to be bottoming, and is rising from oversold levels. Nothing is guaranteed, but it’s starting to look good. And so are plenty of other individual uranium stocks!
Of course, if you don’t like the risk inherent in single issues, you could always check out the new nuclear fund just launched by the Van Eck family of funds. It’s called Van Eck’s Market Vectors Nuclear Energy ETF (AMEX: NLR), and it tracks the DAX Global Nuclear Energy index.
Van Eck says 47% of the fund is devoted to uranium mining, 37% is dedicated to “plant infrastructure,” 10% is in “nuclear equipment,” and the final 5% is in uranium enrichment.
I think Van Eck has good timing. It’s adding those stocks when they’re dirt cheap, and it should ride the long-term trends in uranium to much higher prices. You can do the same.
Yours for trading profits,
Sean
P.S. If you didn’t buy my Golden Age of Uranium Report, you missed out on a big profit party! Fortunately, the recommendations in my Small Uranium Wonders report can be scooped up in the discount bin right now. But that won’t last for long! If you want your own copy of the report, plus all my follow-up reports on all my picks, just call 800-814-3047 and say you want “The Small Uranium Wonders” report. Or, order online at my secure website.
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Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, and Tony Sagami. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, and Julie Trudeau.
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