Cameco Corp: Has the Long Thesis Changed?

With its economy improving and its population still against nuclear, Japan's reactors are still idle three years after Fukushima. Is the long thesis no longer relevant for Cameco Corp?

Jul 16, 2014 at 2:28PM

Several months ago, I reasoned that Cameco Corp (NYSE:CCJ) was a buy because Japan would have no choice but to restart its nuclear reactors -- its weak economy depended on it. I argued that if Japan turned on its reactors, uranium prices would increase and Cameco would rally.

So far, I have been wrong. Four months after writing my article, Japan has not restarted any of its 50 reactors as Japan's economy has, in fact, recovered nicely with annualized GDP growth of 6.7% and inflation of 3.7% in May. Because Japan's economy is doing well, the Japanese government is no longer under any pressure to restart its nuclear reactors. This has in turn caused spot uranium prices to drop below $30/lb and has caused share prices of uranium miners to drop substantially as well. Given that the long case depended on Japan restarting its nuclear reactors, has the long thesis changed?

It's not over until the fat lady sings
Well, just because Japan's economy is doing well now doesn't mean that it will do well in the future. Japan is currently walking a tightrope between deflation and hyperinflation. If the Japan's economy sputters, the country could easily fall back into deflation and not grow again. If Japan's economy becomes too overheated, given Japan's massive government debt to GDP ratio of 227% (versus Greece's government debt to GDP ratio of 175.1%), Japan's economy could easily undergo hyperinflation.

Given that Japan's largest trading partner is China, an economic crisis or significant slowdown in China could easily knock Japan off that tightrope, forcing the government to restart its nuclear reactors to compensate. If Japan restarts its reactors, uranium prices and shares of uranium miners will go higher.

Weak uranium prices present an opportunity
Revenue-wise, low uranium prices are not a problem for Cameco because the majority of Cameco's revenues come from long-term contracts which don't expire anytime soon.   And even if Cameco did a long-term contract in the near future, it would be able to get prices of approximately $45/lb (over 50% higher than current spot price) given that nuclear utilities are willing to pay a premium for long-term guaranteed supply.  

If weak uranium prices continue, Cameco may actually benefit because it may have the opportunity to acquire junior miners like Denison Mines Corp on the cheap. 

The bottom line
Some investors believe the best time to buy a commodity stock is when there is blood in the streets and a catalyst occurs that sends the price of the underlying commodity higher in a sustainable way. So far, the catalyst of Japan restarting its nuclear reactors has not occurred. But just because it hasn't doesn't mean it won't in the future.

Eventually, demand will pick up, and the bearish sentiment will turn bullish. Until that time, Cameco does pay a 1.9% dividend to its shareholders to sit tight. Cameco is the best pure-play uranium miner in the world. The long thesis has not changed.

Do you know this energy tax "loophole"?
You already know record oil and natural gas production is changing the lives of millions of Americans. But what you probably haven't heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America's greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, "The IRS Is Daring You to Make This Investment Now!," and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Jay Yao has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

A Financial Plan on an Index Card

Keeping it simple.

Aug 7, 2015 at 11:26AM

Two years ago, University of Chicago professor Harold Pollack wrote his entire financial plan on an index card.

It blew up. People loved the idea. Financial advice is often intentionally complicated. Obscurity lets advisors charge higher fees. But the most important parts are painfully simple. Here's how Pollack put it:

The card came out of chat I had regarding what I view as the financial industry's basic dilemma: The best investment advice fits on an index card. A commenter asked for the actual index card. Although I was originally speaking in metaphor, I grabbed a pen and one of my daughter's note cards, scribbled this out in maybe three minutes, snapped a picture with my iPhone, and the rest was history.

More advisors and investors caught onto the idea and started writing their own financial plans on a single index card.

I love the exercise, because it makes you think about what's important and forces you to be succinct.

So, here's my index-card financial plan:


Everything else is details. 

Something big just happened

I don't know about you, but I always pay attention when one of the best growth investors in the world gives me a stock tip. Motley Fool co-founder David Gardner (whose growth-stock newsletter was rated #1 in the world by The Wall Street Journal)* and his brother, Motley Fool CEO Tom Gardner, just revealed two brand new stock recommendations moments ago. Together, they've tripled the stock market's return over 12+ years. And while timing isn't everything, the history of Tom and David's stock picks shows that it pays to get in early on their ideas.

Click here to be among the first people to hear about David and Tom's newest stock recommendations.

*"Look Who's on Top Now" appeared in The Wall Street Journal which references Hulbert's rankings of the best performing stock picking newsletters over a 5-year period from 2008-2013.

Compare Brokers