Most of my focus has been on the oil market lately, because when this kind of drop off built on this sparse level of evidence presents itself, you take it fully committed.
But a longstanding dark horse investment of mine has been the uranium industry. So confident in the resumption of this industry am I that every year since the Japan disaster, CCJ has been my pick for the stock of the year contest.
The sector has long been correcting and unloved. This comes from two sources.
The first source is fundamental to how uranium is bought and sold. The market volume is paper thin, and nuclear reactors remain well supplied with upwards of three years worth of fuel at all times. Unlike a coal plant, which takes delivery of fuel almost continuously throughout the year, nuclear power plants are tiny islands of isolation.
The second source is a lack of good news to build excitement in the uranium industry. Shares of uranium stocks have traded like deliveries of uranium – bidless.
Both aspects may be changing though. We are far enough out now from the Japan disaster that reactors are beginning to make adjustments to their supply agreements. As CCJ’s data has well supported, the long term supply agreements have not been prone to the massive drawdown that has plagued the uranium spot price.
Japan’s announcement that they are (finally) beginning the process of restarting reactors (after untold hardships in the face of stubbornness) is the critical breath of life missing from the equation. Nuclear stocks and uranium in particular can begin to get back on the minds of fickle fund managers. Investment can pick up in the sector.
Currently, I am showing uranium spot price in the mid to upper $30-40 range. This is a huge recovery from the high $20’s range that spot uranium was trading in just this spring.
If pricing can keep working upward, steadily, into the $40’s, I’d say we’d be getting close to a big and much needed pick me up.