Uranium Mining Stocks ETF Explodes 4%: Time To Buy?


The explosion in uranium mining company stocks this year shows big investors are choosing the nuclear option again.

Global XUranium ( URA ) -- the No. 1 performing natural resources fund -- spiked nearly 4% Thursday, breaking above its key 200-day moving average for the first time in 10 months. This could be the early beginnings of a trend change for this ETF, which crashed 19% last year and a whopping 60% in 2011 following Japan's nuclear disaster brought on by the earthquake and tsunami.

URA has rallied 11% year to date vs. 3% for the MSCI World Index and 2.6% for the natural resources funds. It features the highest IBD Accumulation-Distribution Rating possible on an A-to-E scale of A+, which shows institutional investors are ravenously hoarding shares.

World's Largest Uranium Miner

The world's largest uranium miner, Cameco ( CCJ ), accounts for nearly one-fifth of 19-stock portfolio. The Canadian firm produced 22.4 million pounds of uranium in 2011 and aims boost output by 60% to 36 million pounds by 2018, according to Morningstar. TD Securities rated the stock a hold in a December research note.

TD analysts Greg Barnes and Bonita To wrote: "The election of a pronuclear government in Japan, the resumption of nuclear plant approvals in China, the cancellation of several greenfield uranium mining projects and the termination of the HEU (Highly-Enriched Uranium) Agreement (between the American and Russian governments) at the end of 2013 all suggest that uranium supply and demand should find a new equilibrium over the next several years.

"In the interim, we see the approval of nuclear plant restarts by the Japanese government as possibly the most significant positive catalyst for uranium equities and the uranium price. Whether this will happen in second half of 2013 -- as many expect -- is open to question, in our view, with the new Japanese government suggesting that it aims to reach a conclusion on restarts 'within three years.'"

Cameco management believes Japan could restart five or six reactors by the end of 2013. Weak uranium prices dampened production after the Fukushima accident. Cameco lowered its 2018 output target to 36 million pounds from 40 million.

"The recent rebound in the spot uranium price is encouraging, and we expect the price to remain volatile as the market continues to find a new equilibrium after Fukushima," Barnes and To added. "We believe that the uranium market remains reasonably well supplied and that utility requirements are well covered over 2013-2015. Longer term, we expect a widening supply deficit by the end of this decade following the cancellation and deferral of several uranium mining projects -- ultimately, we believe that this is laying the groundwork for the next bull market for uranium."

Uranium Energy To Outperform

Haywood Securities ratedUranium Energy ( UEC ), weighted 6% in the portfolio, sector outperform in a December research report. The Vancouver-headquartered uranium explorer and mine developer is set to ramp up production in South Texas.

"Uranium Energy became a uranium producing company in November 2010, and we believe that no other new U.S. producer will enter production until mid-2013, as a result of permitting delays and construction timelines," Haywood analysts wrote.

Reversion To The Mean?

URA could be a "reversion to the mean" trade, in which a stock or ETF rebounds simply because it's sold off so much and outperforms as it catches up with the market in the long run. It also trades at cheap valuations compared with its benchmark, the MSCI World Index and natural resources funds. It trades at a price-to-book ratio of 0.67 and price-to-sales of 0.46. The MSCI World trades at 1.5 times book and 1 times sales, while the natural resources trades at 1.65 times book and 1 times sales.

Top 10 Holdings In Global X Uranium ( URA ) And Portfolio Weighting

1.Cameco Corp. ( CCJ ) 18.85%

2. Paladin Energy Ltd. 14.93%

3. Uranium One Inc. 11.84%

4. UEX Corp. 6.28%

5. UR-Energy Inc. 5.73%

6.Uranium Energy Corp . ( UEC ) 5.65%

7. Denison Mines Corp. 5.10%

8.Uranerz Energy Corp. ( URZ ) 4.45%

9. Rockgate Capital Corp. 4.26%

10. Energy Resources Of Australia 4.21%

Follow Trang Ho on Twitter @TrangHoETFs .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , ETFs

Referenced Stocks: CCJ , UEC , URA , URZ

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