You Mean Uranium Prices Can Drop?

Funny thing about trends: They last until they don't. The longer a trend lasts, the stronger the belief in its persistence becomes, and the inevitable reversal becomes all the more unsettling.

The price of uranium has been one of the most remarkable trends I've observed as an investor. (Emphasis on observed -- I've sat on the sidelines and watched groupwide multibagger returns pass me by.) Until last week, the metal's spot price hadn't registered a decline in almost four years. It was one heck of a powerful trend. Now that it's over, what's a uranium-watcher to do?

In short, pray for more of the same. Animal spirits have driven the price of uranium miners, and particularly speculative junior explorers like Uranerz (AMEX: URZ  ) , through the roof. We need to see a more significant correction to really reverse the flow of those speculative juices. Let's be clear -- we still haven't seen anything remotely like a correction in the uranium price, which is up nearly 13-fold over the course of its 47-month uninterrupted rise.

But the 2.2% drop from $138/lb to $135/lb over the past few weeks has been enough to clip junior explorers and emerging producers alike by double-digit percentages. This extremely modest pullback in the commodity price has revealed quite a lot about which shares are held in steadier hands -- industry titan Cameco (NYSE: CCJ  ) was understandably the least affected of any uranium stock I follow. More surprising has been the sell-off in promising emerging producers like Uranium One, Paladin Resources, and Denison Mines (AMEX: DNN  ) .

This rather indiscriminate recent selling is a promising start, but I'd suggest you look for real panic to send the momentum crowd packing, if you're looking for an entry point. Only when uranium shares come to be avoided like radioactive waste will I abandon my observer status and pick up shares of one of several near-term producers I've got my eye on.

Related Foolishness:

The closest that Fool contributor Toby Shute has come to handling hazardous waste was while doing his laundry in college. He doesn't own shares in any company mentioned. The Motley Fool's disclosure policy doesn't stay on the sidelines.


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  • Report this Comment On March 19, 2008, at 8:57 PM, logikonline wrote:

    While the prices on Uranium had moved through the roof - the commodities as a whole did reverse and we are only in the beginning of this bull market. A true "fool" would have recognized this pattern (like the Dell picks you claim to be looking for) and been riding this wave earlier.

    The healthy correction in Uranium stocks - are mostly people selling to cover other positions but the fundamentals remain strong. As with all juniors (which is really what this uranium sector is) - the ride/corrections are violent - but timing this industry is not wise. Dollar cost average in if you believe the fundamentals and be happy when it pulls back. Energy needs in a growing world - will only become more demanding with emerging markets. China and India happen to like electricity – go figure.

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