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Uranium: Betting with a Billionaire
05/07/2014 8:00 am EST
After being hit by a tsunami three years ago, Japan announced that it would stop building more nuclear plants; consequently, uranium prices plummeted and uranium stocks fell in sympathy, explains Mark Skousen in Fast Money Alert.
Now, three years later, Japan's changed its energy policy by reversing plans to gradually mothball its nuclear power plants. Nuclear power's back, starting in Japan.
Uranium demand is picking up, although the price remains down to $33 a pound. But the stage is set for an explosive rally. Thanks to rapid growth in emerging markets, electricity demand is ramping up, and so is demand for nuclear energy.
Today, there are 70 nuclear reactors under construction worldwide, with 160 planned and 315 proposed.
Altogether, uranium supplies need to increase by about 90 million pounds annually by 2020 to meet demand. But, at current low spot prices, the industry can only supply half of that total.
How to profit? Recently, billionaire investor George Soros has been enriching his portfolio with Cameco (CCJ), the world’s largest producer of uranium. And he has been adding to his position (currently $126 million worth).
Cameco has the lowest costs of production and strongest balance sheet in the industry. Revenues rose 15.5% to $2.5 billion in 2013, and earnings jumped 55% to $325 million. With profit margins exceeding 13%, the company is selling at 17 times forward earnings.
Now that its Cigar Lake facility in northern Saskatchewan is coming online, Cameco is expected to produce an additional two to three million pounds of uranium concentrate in 2014 and increase production to 18 million pounds by 2018.
If uranium prices reverse course and rally from current levels, Cameco shares could skyrocket. Traditionally, now is an excellent window of opportunity. Cameco tends to do well in late April into May (75% of the time it makes money for investors).
Let’s join George Soros and buy Cameco at market. For those wildcatters out there, consider buying the September $26 calls.
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