Uranium Stocks: Ready for a Breakout?

Uranium mining stocks like Cameco Corporation (TSX:CCO)(NYSE:CCJ) could be ready for a breakout.

| More on:

Few sectors are trendier these days than uranium mining. The world is in the midst of an energy crisis, and nuclear energy seems like the perfect solution. On Tuesday, Germany reported a 46% increase in Producer Price Index inflation (inflation to businesses rather than consumers), and a lot of it was due to energy prices. In response to this crisis, the European Union has been loosening regulations. For example, last month, it passed a law that allowed energy companies to label nuclear plants as “green.”

All of this appears bullish for uranium miners. Uranium prices have been steadily climbing this year, driven by tight energy supplies and the renewed popularity of nuclear energy. If this continues, then investors could get wealthy. The question is, will it continue? And if so, what reasons do we have for thinking that it will?

Why uranium is becoming more and more important

Uranium is becoming more and more important because other energy sources are in tight supply. Russia is withholding Europe’s supply of natural gas, which has led to energy price inflation. In the meantime, other countries are still dealing with supply chain issues, such as lockdowns in China that are disrupting shipping. Oil, as a commodity that has to be physically transported, is vulnerable to continued inflation as long as the global situation continues as it has been.

In the midst of all this, uranium is standing tall. It only takes a few tonnes of uranium to fuel an entire city, a supply that can be mined in a few days. On top of that, nuclear energy produces zero carbon dioxide emissions, so it’s good for the environment. It certainly looks like nuclear is the fuel of the future, and some countries are embracing it. For example, Japan is ramping up its nuclear production, and Germany is even considering changing course on its nuclear power plant shutdowns.

Why it might not be as great as some think

It’s definitely true that nuclear energy is going to be part of the grid of the future, but that doesn’t mean that uranium is a boon to investors. To the contrary, it may disappoint. The problem is that uranium’s practical virtue is its business drawback: it takes so little of it to fuel a city that uranium will likely never be an enormous global market like oil is now. The amount needed to fuel an entire city can be mined in a few days. So, countries won’t be buying more and more of it every year like they do with oil today.

A uranium mining stock

Assuming the preceding paragraph doesn’t deter you, Cameco (TSX:CCO)(NYSE:CCJ) stock is one you might want to take a look at. It’s a Canadian uranium miner that supplies fuel for nuclear power plants. It is benefitting from this year’s rise in uranium prices. For example, in its most recent quarter, it delivered $557 million in revenue, up 55%, and $84 million in earnings, up 328%. It was a solid showing, and as long as uranium prices keep going up, investors can expect more of the same.

Bear in mind the risks, though: uranium is a commodity that varies in price like any other. If the energy crisis gets solved, expect Cameco’s earnings to dip.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

A data center engineer works on a laptop at a server farm.
Tech Stocks

3 No-Brainer Data Centre Stocks to Buy With $500 Right Now

Data centres are going to be a huge growth opportunity in the next decade. And these are the top buys.

Read more »

Paper Canadian currency of various denominations
Bank Stocks

1 Magnificent Canadian Dividend Stock Down 28% to Buy and Hold for Decades

This top Canadian dividend stock is underperforming its large peers this year, but a turnaround could be on the horizon.

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Where to Invest Your $7,000 TFSA Contribution

The TFSA is attractive for investors who want to generate tax-free passive income.

Read more »

The TFSA is a powerful savings vehicle for Canadians who are saving for retirement.
Dividend Stocks

TFSA Investors: 3 Dividend Stocks Worth Holding Forever

These TSX stocks have the potential to grow their dividends over the next decade, making them top investments for TFSA…

Read more »

hand stacks coins
Investing

Secure a Wealthy Future With These 3 Canadian Stocks

These Canadian stocks have the potential to appreciate substantially over time and may also enhance returns through dividend payments.

Read more »

Tractor spraying a field of wheat
Dividend Stocks

Is Nutrien Stock a Buy for its Dividend Yield?

Nutrien is down more than 50% form the 2022 highs. Is NTR stock now oversold?

Read more »

analyze data
Investing

3 Blue-Chip Stocks Every Canadian Should Own

These blue-chip stocks are backed by large-cap companies with well-established businesses, solid fundamentals, and a growing earnings base.

Read more »

dividends grow over time
Stocks for Beginners

The Smartest Growth Stock to Buy With $2,000 Right Now

Do you have $2,000 to invest for the long term? These three TSX stocks have and will continue to deliver…

Read more »