Uranium could be a monster in 2014 «
There are a lot of investors out there that still have a sour taste in their mouth when it comes to uranium stocks. The last time these guys were getting any attention was back in the second half of 2010 when they all had huge rallies. This continued into early 2011, but ended badly with the Tsunami in Japan that caused a nuclear meltdown at a Fukushima power plant. However, investors’ fears after the accident may be waning.
A disaster like Fukushima often becomes the old, “kid touching the hot stove” sort of mentality. And sure enough, we haven’t heard much out the uranium space ever since. I personally think this is bullish for these stocks. The less that the media and mainstream investors are involved, the more I like them. When you see uranium stocks making the headlines and everyone’s talking about them, that’s when we’ll probably be selling.
Let’s start with the granddaddy of them all: Cameco /quotes/zigman/16829/delayed/quotes/nls/ccj CCJ -0.51% . This is what we call the ExxonMobil of uranium stocks. Not that it is anywhere near the size of America’s largest company, but relatively speaking, Cameco is so much bigger than the others, that in the uranium world, it is the benchmark.
What stands out to me is the huge two-year base that this stock has put in since 2011. After such a devastating collapse, such as the one that took place here, typically the only thing that can repair it is time. I could not have drawn this one up any nicer. As you can see in this chart, the upper end of the range is about $23. So a breakout above this key resistance could signal the beginning of a new leg higher.
Enlarge Image The reason I see huge potential from this space is a combination of the huge base and that Tsumani gap between 33 and 37. For an initial target, these are serious returns. But there are other much smaller stocks that could benefit from a rally in the uranium space.
Take a look at Uranium Energy Corp /quotes/zigman/401753/delayed/quotes/nls/uec UEC 0.00% , and Denison Mines /quotes/zigman/37804/delayed/quotes/nls/dnn DNN +1.52% are much smaller in terms of market capitalization and bring much more risk and volatility to the table, but can certainly lead in terms of performance if this space gets going.
You might hear some people talking about uranium demand increasing if coal or natural gas prices start to rally. I’ve heard those theories and done the math. The results do not show any reliable correlation between uranium and some of the other energy sources. So if you’re interested in uranium, don’t worry so much about those theories, the math doesn’t support it.
I’d still be watching Cameco for a breakout in terms of leadership regardless of whether you’re trading this name or you’re in the smaller ones. I like to think of Cameco as the Dow or S&P of uranium stocks, and then look to the others for higher beta.