Editors' pick: Originally published Jan. 21.
The crash in oil prices has weighed on just about every commodity in the energy sector, except uranium. Concerns about global warming are prompting even many environmentalists who once ardently opposed nuclear power to now embrace it as a cleaner alternative to fossil fuels.
With the Fukushima disaster of 2011 fading into memory and emerging markets stepping up plans to build new nuclear power plants, a bull market in uranium is likely this year.
The international climate change accords in Paris last month endorsed nuclear as a way to reduce carbon emissions. And just this week, the Obama administration announced that it would provide seed money for advanced nuclear designs that are safer and more efficient, as a way to make sure nuclear stays in the U.S. "energy mix" for the next several decades. The news from the White House is another example of how government research into new technologies eventually benefits investors.
Despite its current woes, China continues to make a big bet on nuclear, in large part to wean itself away from coal and to mitigate a horrendous air pollution problem that's becoming a safety as well as political crisis. The country has 26 nuclear power reactors in operation and 25 under construction, with nearly 100 on the drawing boards for 2030.
Meanwhile, as daily headlines make painfully apparent, there's no end in sight to the decline in the price of crude, which this week plunged to less than $27 a barrel, a 13-year low.
Since Jan. 1, 2014, the spot price of uranium has risen slightly and now hovers at $35.10 a pound, as opposed to a nearly 80% decline in oil and a nearly 50% decline in natural gas over the same period.
And unlike oil and gas, uranium faces a bright future of higher demand and prices. Analysts currently predict uranium prices over the next three years will move up to the $80 to $85 per pound range, before settling back to roughly $70.
With a market cap of $4.3 billion and low debt, Cameco is gearing up to meet demand. The company announced this month that it expects its newest mine in Saskatchewan, Canada to produce 16 million packaged pounds of uranium concentrate in 2016. Also this month, the company said that it would open as many as three expansion uranium mines in the Nebraska Panhandle.
Canada-based Cameco will benefit from soaring Chinese demand for uranium. The company is the primary supplier of the country's yellow cake, under a contract that runs through 2025. India's accelerating pursuit of nuclear power also will boost demand for Cameco's uranium.
Cameco shares are now trading at about $10.90. The average 12-month price target of analysts is $23.55, which suggests the stock can gain about 116%. Among the analysts covering the stock, 12 have buy ratings, one has an overweight rating, two have have holds, and there are no sell ratings. On average, analysts expect Cameco will report earnings per share of $1.32 in 2016, up from the 96 cents they are estimating for 2015.
The company also is helped by its low debt-to-equity ratio of 0.27, which compares favorably to competitors such as BHP Billiton, which carries a ratio of 0.47. In the mining sector, the spoils go to the lowest-cost producers.
Cameco's 12-month trailing price-to-earnings ratio is about 42, which seems high in comparison with the trailing P/Es of major mining competitors BHP Billiton (27) and Rio Tinto (14). But BHP Billiton and Rio Tinto are more diversified commodity producers, and as such their prospects are considerably less favorable than those of uranium pure-play Cameco.
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John Persinos is editorial manager and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.