Commodities: Uranium
A number of times over recent months, we’ve been looking for some stock/sector reversion, but it has proved elusive as bond yields continue to make fresh multi-year highs, ultimately leaving most of 2023’s trends intact, e.g. an underperforming Healthcare Sector while Tech heads the winner’s enclosure. More on this later when we put the increasingly influential bond yields back under the microscope given our views are being challenged.
This is not the first time we have looked at uranium this month but after Friday’s advance to multi-year highs, we thought it was an important time to clarify our firm opinion, i.e. we are bullish. The URNM ETF closed up another +1.75% on Friday, suggesting another strong day for the local sector today – this ETF follows companies who devote at least 50% of their business to uranium, it currently includes Cameco Corp (CCJ US) 16.1%, Paladin (PDN) 4.7% and Boss Energy (BOE) 4.7%.
Happy holidays guys!
Uranium stocks have surged higher over the last 48 hours and we believe this is a move to embrace, not fade – remember our very bullish outlook in the MM Resources into FY24 webinar. The uranium price has more than doubled over recent months, posting fresh decade highs in the process. It’s a straightforward game of supply & demand that has reached a tipping point as Utilities that have been drawing down inventory levels suddenly have to chase supply.
Overnight, we saw the US-traded Sprott Uranium Miners ETF rally another +3.7%, this ETF’s largest holding is currently Cameco (CCJ US) at 16.6%, while it also holds 4.6% in Paladin (PDN) and a 4.4% position in Boss Energy (BOE). At MM we are bullish on the whole space, for subscribers who prefer investing locally, the ASX listed BetaShares Uranium ETF (URNM) is an excellent alternative, it has very similar exposure in both PDN and BOE.
Happily, PDN resides in two MM portfolios, our question today is whether these holdings are big enough, as opposed to whether we should take profit.
Unlike its peers, BOE is now trading at all-time highs, similar to the rest of the space, we are bullish towards BOE and would consider the stock into periods of consolidation, and/or pullbacks, although the risk/reward is tough just here – remember, from a statistical perspective buying stocks breaking to fresh highs adds alpha/value to portfolios, if managed correctly.
CCJ rallied another +2.5% overnight, with the $US17bn uranium business testing its 2011 levels in the process. Taking into our outlook for uranium we believe this is a rare scenario where we should simply sit back and enjoy the ride – in terms of global markets 3% exposure is high but it’s never enough when stocks surge like CCJ.
Over the long weekend in the US, Cameco downgraded their 2023 production forecast given challenges at two of their mines. Overnight was the first time the stock had a chance to react and the response was muted, ending down just -0.56%. The initial news saw many in the sector rally strongly as fewer new pounds into the market constricts an already challenging environment for buyers, who seem to be increasingly focused on locking down supply which is shown through greater activity in the contract market.
