A Nuclear-Powered Market Rocket

11/24/2010 9:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

Gordon Pape, editor of The Canada Report, recommends leading uranium miner Cameco, which is rallying on strong demand from new Chinese nuclear power plants.

Cameco (NYSE: CCJ) shares have moved sharply higher since our last review in September, thanks to a surge in world uranium prices. After hovering in the low $40s per pound range for the first half of the year, the price began to move up in August, reaching $48 a pound in September. Since then, it has spiked dramatically, trading near $60 a pound.

TD Securities says the price jump is due to new demand from China and has raised its 2011 forecast to $62.50 a pound with a $75 target in 2012. [If that seems steep, consider that uranium sold for $140 a pound in 2008, according to Lawrence Roulston-Editor.]

The big price move has prompted renewed interest in Cameco, the world's No. 1 uranium producer. As recently as July, you could have purchased the stock for around $21. Now near $37, it is above the level at which we originally recommended it in 2008, just before the market meltdown.

This happened despite a 43% drop in third-quarter net earnings compared with 2009. On Nov. 8, the company reported a profit of $98 million (25 cents a share), down from $172 million (44 cents a share) last year (figures in Canadian currency). For the first nine months of the 2010 fiscal year, earnings were $308 million (78 cents a share) compared with $501 million ($1.29 a share) last year.

However, CEO Jerry Grandey put a positive spin in the results in his comments. "Production volumes are 17% higher than in 2009, while production costs are lower," he said. "Our US dollar realized prices have also risen, illustrating the strength of our contract portfolio.

"As we advised earlier this year, revenues were lower in the third quarter due to the timing of uranium deliveries. We expect about one-third of our uranium sales will be delivered in the fourth quarter.

"We are on track to double our annual uranium production from existing assets by 2018. Our growth strategy is in place to ensure we remain among the world's leading uranium suppliers to those who choose to use safe, clean, and reliable nuclear power."

The stock has already made a big move but those who have not taken a position may want exposure to what is shaping up to be a new bull market in uranium. Buy up to $40.

[For another look at Cameco, see Elliott Gue's recommendation from May 2009. Terry Savage discussed the nuclear industry's brightening prospects and gave the lowdown on two related ETFs in this blog post. The World Nuclear Association tracks global reactor construction plans here-Editor.]

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