But uranium looks like it has much more room to run over the long haul as demand will keep rising. In a recent report, Morgan Stanley's analysts noted that 147 new nuclear power plants will be built over the next decade. That figure rises to 330 if you account for all of the proposed but yet-to-be-approved plants. China leads the way with 159 proposed plants, while India (60), Russia (44) and the United States (31) account for the bulk of the remaining planned sites.
As the rising role of nuclear power starts to become more evident, industry players will have increasing confidence in the strong long-term demand for uranium. And that could push uranium toward the $65 to $70 mark in a few years -- that's a 25% to 35% spike from current levels. Moreover, share prices of key players could rise at an even faster clip, thanks to high operating leverage at uranium mines.
Safe vs. Speculative
Investors can look to protect their downside while seeking reasonable upside by investing in the industry's blue-chip player Cameco (CCJ).
Shares have already risen 30% since then, but they could be hit by profit-taking if uranium prices cool. But longer-term, you're likely looking at 50% upside from here if uranium surges toward the $70 mark.Another relatively safe play for investors is Uranium Participation, which holds uranium in inventory and thus its shares closely track the underlying commodity. (Note: This is a Canadian company that trades on the Toronto Stock Exchange. Buying and selling stocks in this exchange is relatively easy for most individual investors, but call your broker for more information if you're interested.) Action to Take: Uranium ran to $136 a pound in 2007. That was based on pure fevered speculation, and most industry players quickly realized that such prices were unsupported by any underlying fundamentals. Still, a rebound to just half that peak would be great news for the stocks in this sector. And with the nuclear renaissance taking shape in coming years, we may get there sooner than many think. As noted earlier, Uranium Resources, Uranerz Energy and UR Energy are all highly leveraged to uranium prices, moving three to five times faster than the underlying commodity's price. But I'm averse to chasing speculative names after a strong run, and would suggest closely watching the names for a hoped-for pullback. Other stocks that have potentially significant upside include Paladin Energy (PALAF.PK), which trades on the Pink sheets, and Bannerman Resources. This article originally appeared on StreetAuthority. To read more articles from David Sterman on StreetAuthority, you can visit this link. Disclosure: At the time of publication, David Sterman owned no positions in the stocks mentioned.
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