Harness Uranium's Power With Cameco

Uranium is the new metal with moxie. The key ingredient in the recipe for making nuclear energy, its price has risen 100% in the past 22 months to $20 per pound as the world has come to grips with the notion that a carbon-based economy won't last forever.

Uranium is not particularly rare. Actually, it's more commonly found in the earth than tin. But most of it is light stuff that can't be mined. Commercially viable concentrated uranium ore, however, is scarce, and it's hard to extract and convert into a usable form. About 28% of the world's supply is in Australia, another 20% is in Kazakhstan and 14% is in Canada.

That last region is getting attention from investors now, as the world's largest uranium miner and producer calls Saskatchewan home. Shares of Cameco (CCJ Quote), a remarkably profitable mid-cap Canadian company, broke out of a half-month consolidation last Friday on four times normal volume, then hit another new high Tuesday at $92 on twice the normal volume. From a technical standpoint, it looks good to at least $100, and probably $110 or more from there.

The chart is less interesting here, though, than the fundamental story. The miner appears somewhat undervalued and underappreciated despite a 65% rise in 2004. It's covered only by Canadian analysts, and they forecast that the company can earn $3.42 per share this year and $4.41 next year. That makes the forward price-to-earnings multiple on 2005 income around 19, a good bit below estimated 28% growth.

Cameco also looks relatively underowned in the U.S. Through Sept. 30, 7.8% of the company was held by the deep-value investors at Wellington Management, 6.9% by Canadian value house McLean Budden and 2.4% by San Francisco firm Eastbourne Capital Management.

This means that if the growth story of nuclear energy and uranium becomes an important theme over the next year, a lot of growth investors are going to want to pry shares out of these long-term holders' hands, and they'll have to pay up.