Uranium: "Diamond in the Dust Bin"
06/24/2005 12:00 am EST
"Since the correction in raw materials began in late March, I've looked for good stocks that were unfairly dumped, or what I would call diamonds in the dust bin," says Eric Roseman. "I've unearthed several tremendous bargains, but the best trade of all appears to be in uranium."
"Uranium fuels almost all of the world's 441 nuclear reactors, generating more than 16% of global electricity. To be sure, uranium has certainly had its share of bad press over the years, including Three-Mile-Island in the late 1970s and Chernobyl in the 1980s. Yet despite environmental challenges facing nuclear reactors and how to dispose of nuclear waste, the industry is now in the midst of its greatest bull market in history because of booming demand from China, Japan, and France. Plus, with crude oil prices clearly in a supply-based bull market, the world is scrambling for alternative energy sources in the 2000s.
"If you're bullish on uranium, then it's hard to avoid Canada. In 2003, Canada was the world's largest uranium producer at 10,457 tons or $460 million dollars. International Uranium Corp. (CA:IUC Toronto) has been our best performing portfolio holding; we’ve had cumulative gains of over 500% since 2003. Cameco (CCJ NYSE), the world's largest uranium producer, has been a fantastic stock since 2000, gaining more than four-fold. Meanwhile, second-tier companies in the uranium sector like Denison Mines (CA:DEN Toronto), have leapt ahead over the last few years and still trade near their all-time highs set in late March. But f or a new uranium play, we're looking for price leverage, a cheap stock, and one that has tanked from its all-time high.
"One small-cap exploration company, which is currently trading 49% off its all-time high, has all the ingredients of top potential performer. UEX Corporation (CA:UEX Toronto), based in Vancouver, is exploring various projects in Saskatchewan's rich Athabasca basin, home to one of the world's largest deposits of uranium. What really intrigues me is Cameco's involvement. In fact, Cameco is the largest shareholder in UEX. Cameco is ‘smart’ uranium money. The way I see it, Cameco is placing a big stake in UEX and I think this stock will rebound sharply as the uptrend in uranium prices continues for the foreseeable future. I'm also betting that UEX will strike a big deposit in Athabasca.
"Meanwhile, other developments also paint a bullish picture for this stock. Canada's most successful hedge fund manager, Eric Sprott of Sprott Securities in Toronto, has earned shareholders a fortune over the last five years speculating in natural resources. Sprott employs the best precious metals manager in Canada, John Embry, and several other five-star analysts in the commodity sector. Back on April 20, 2005, Sprott Securities noted that UEX ‘has corrected back into buy territory.’ Sprott's hedge funds and equity funds have large positions in the uranium sector, including UEX.
"After turning cautious on commodities in March, our recommendation for UEX marks our first foray back into this sector in our commodity portfolio. In our view, it's time to go hunting again for great companies in great businesses, and UEX fits the bill. Although the stock also trades in the ‘pink sheets’ in the US, I urge investors to purchase the stock directly on the Toronto exchange up to $2.15 Canadian. In addition, I would note that due to the high volatility of this stock, I'm widening our typical protective stop-loss from 15% to 20%. This is a great investment in uranium exploration at a time when demand is booming. Long live uranium."