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Charged Up Over Uranium

09/09/2005 12:00 am EST


Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

In addition to his Forecasts & Strategies newsletter, Dr. Mark Skousen is frequently a contributing panelist to The Oxford Club. Here, he looks at the impact of Katrina as an additional reason behind his long-standing bullishness on uranium.

"Hurricane Katrina blew into the underbelly of the US like Sherman invading the South, and destroying everything in its path and disrupting the engine of growth. Without a reliable, cheap energy source, the US engine could grind to a halt. Combine natural disasters with the geo-political instability we are witnessing in the terrorist-prone Middle East and communist-inspired Venezuela, and you have a recipe for a never-ending energy crisislike $70 a barrel for oil, $5 for a gallon of gasoline, and $11 per million BTUs for natural gas.

"So, how do you survive and prosper in this scenario? In my opinion, with nuclear power. According to Cambridge Energy Research Associates, North Americans will face sharply higher prices to power, heat, and cool their homes through at least 2008. Here are a few reasons for this forecast:

  • Oil and gas are non-renewable resources and subject to supply interruptions.
  • Coal is dirty, labor-intensive, and dangerous to workers.
  • Wind power has to be heavily subsidized.
  • Fuel cells are still searching for a breakthrough technology.
  • Electrical power dams have reached the point of diminishing returns and are subject to severe environmental restrictions.

"What do we do? My favorite for investors is nuclear power. Nuclear power is the preferred energy alternative. It is better and cheaper than coal, water, wind, and fuel cells. And the rest of the world already knows this. Japan, for example, is stockpiling five years' worth of uranium. China is building two 1000-megawatt plants every year for the next 20 years. And Pakistan and India are going nuclear at a rapid pace. World demand for uranium is outstripping supply, by as much as 100 million pounds in 2005 (and here we are not counting the clandestine demand for uranium by rogue states such as Iran and North Korea).

"Not surprisingly, the price of uranium has gone from $8 a pound in 2000, to $30 today. But it still has a way to go before exceeding its all-time high of $43 a pound in 1979. And uranium is still dirt cheap in real, ‘inflation-adjusted’ terms. There's no telling how high uranium prices could go. But beware. I would avoid thinly traded uranium stocks in Canada that only promise to be profitable sometime in an uncertain future. More seasoned investors are playing it safe with Cameco (CCJ NYSE), a well-established blue chip. Invest in uranium now."

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