The author of today’s article, Cody Shirk, is a friend of mine who travels the world looking for waves – he’s an avid surfer – and investment opportunities. He writes a free newsletter several times a week (you can sign up here) that focuses on building wealth from a variety of sources, with the ultimate aim of creating personal freedom. By “personal freedom,” he’s talking about the freedom to wait for the perfect wave, travel to exotic places, and to do not be bound by convention. And money enables freedom.
Cody has traveled throughout much of Latin America, Europe and Asia, and what he writes about markets and investing reflects a great on-the-ground perspective. That he’s found his own way in the world of investing – Cody was a firefighter in the U.S. state of California for close to a decade – lends to his unique and unorthodox perspective.
I enjoy Cody’s articles a lot, and I think you will too.
Is this beaten-up commodity ready to rebound in 2017?
By Cody Shirk
Looking at its track record, you’d want to run away from it – and that’s exactly what most investors have been doing.
Uranium has been in free fall for the past year, without having a single month of gain. Uranium is trading at prices not seen since 2004.
I’ve been keeping my eye on this sector for several years now, waiting for a time to buy. I think that time is now.
I look for investments with minimum downside risk and lots of upside potential. I look for ways to make huge returns, but I am even more concerned with avoiding big losses.
This is why I buy real estate in areas that are selling for less than the cost of construction. I don’t know when prices will rebound, but if I buy then I do know that there isn’t much room for prices to fall more.
This is also why I avoid lots of high-flying tech stocks. Do I think they have great products? Yes. I use their stuff every day and I believe they’ll be around for a long time to come.
Will these popular stocks go up in the future? Probably. They may even double or triple over the next couple of years.
But I also know that they’re trading at huge multiples. They have lots of upside potential but also plenty of downside risk.
I want huge upside risk with minimum (ideally zero) downside risk.
That’s where I see uranium today.
Uranium’s recent roller coaster ride
As shown below, uranium is trading today for about US$20 a pound, down from its 2007 high of nearly US$140 a pound. At current prices, most mines have shut down or are literally spending more to mine the metal than they’re selling it for.
This is very similar to my comparison of real estate selling for less than the cost of construction. Prices may stay low for a while, but eventually, things will turn around.
Additionally, uranium demand is forecasted to increase by 50 percent by the year 2030, as additional nuclear reactors come on line. Currently there are at least four under construction in the U.S., three in the UK, and many more in China.
And that’s not including the “old reactors” that have been taken offline for retrofits and upgrades. Following the Fukushima disaster in 2011, nuclear power has suffered from a renewed bad reputation. Many reactors worldwide were taken offline because of concerns that similar catastrophes could occur. To fill the power void, plants ramped up coal, solar, wind, and natural gas production.
Environmental concern aside, nuclear power is the most efficient (and cost effective) form of energy. That’s why many countries around the world are shifting back towards nuclear energy.
But because of the multi-year price slump in uranium, many producers have either reduced or shut down production. In addition, reduced usage of uranium has led to oversupply, which has contributed to the collapse in prices, and pushed producers to cut extraction even more.
This is a classic boom and bust cycle. When uranium sold for high prices in 2007, for example, miners ramped up production to earn larger profits. Once the market was oversupplied, prices declined, and mines shut down. Now that excess supply is being used up, prices will eventually rise.
We’re approaching the moment when production is decreasing but consumption is rising. Miners will ramp up production, but this can take years. You can’t just flip an “on” switch at a mine. So at some point something will have to give — and the first thing will be uranium prices.
How to invest in uranium
I’ve dug into the books of a variety of different uranium miners to determine which ones are the best buy. I’ve identified at least five that will do well over the next boom cycle.
However, I have an even easier way for you to invest in the uranium market, and that’s through the Global X Uranium ETF (traded on the New York Stock Exchange, ticker symbol URA).
URA’s top holdings include Cameco, NexGen Energy, Uranium Participation, Denison Mines, and a variety of others. These companies are the exact companies I would have recommended if this ETF didn’t exist.
So instead of making multiple purchases and chasing around different information about individual companies, you can buy URA to spread your investment across a broad mix of companies.
URA also gives a 7 percent dividend, which only sweetens the deal.
Uranium shares have seen a huge bump recently, with a couple of companies seeing 50 percent gains in a very short period. I wouldn’t be surprised to see a quick correction, but the larger story is still in play.
If you haven’t bought into uranium yet, don’t worry. You’ll have plenty of time. You can, however, start to buy a position now and then increase over the next year.
We may see a bit more pain in the uranium sector, but I see a lot more upside potential than downside risk, making for an excellent investment.
Cody is watching this sector very closely and will be updating his subscribers on new opportunities as they appear. Sign up for free updates here if you’re curious to watch how this investment plays out.