What happened

Uranium stocks are taking a breather this morning after a torrid run last week. Here are the top losers in the industry as of 12:40 p.m. EDT on Monday:

  • Uranium Royalty (UROY -6.05%): down 15%.
  • Denison Mines (DNN -2.50%): down 12.9%.
  • NexGen Energy (NXE -2.82%): down 11.7%.
  • Uranium Energy (UEC -5.57%): down 10.9%.
  • Ur-Energy (URG -4.22%): down 10.7%.
  • Cameco Corp (CCJ -2.15%): down 7.6%.

Although the International Atomic Energy Agency just raised its long-term nuclear energy estimate substantially, the broader market weakness, muted outlook from Morgan Stanley, and news from China are all weighing on uranium stocks today.

So what

Uranium stocks have been on fire in recent weeks alongside uranium prices, which shot up almost 60% in just the past four weeks thanks to aggressive spot uranium purchases by the world's largest physical uranium exchange-traded fund, the Sprott Physical Uranium Trust Fund (SRUU.F -3.89%).

As of Sept. 17, the Sprott fund had amassed 28.3 million pounds of uranium compound, adding more than 10 million pounds in just one month. With junior uranium pure-play companies like Uranium Royalty also pitching in to purchase uranium from the market (it contracted to buy 300,000 pounds last week), spot uranium prices, and uranium stocks, continued to trend higher.

A businessperson resting his head on table with computer screens in front displaying crashing stock price charts.

Image source: Getty Images.

Morgan Stanley, though, believes the rally in uranium prices might not be sustained in 2022, according to Business Insider.

Elaborating the rationale behind its cautious outlook on uranium, Morgan Stanley says that while prices of other natural resources like coal and natural gas have risen on market tightness, the same cannot be said of uranium as prices have been pumped up by purchases from the Sprott Physical Uranium Trust fund and not meaningful changes in the supply/demand balance in the uranium market.

Meanwhile, China is reportedly testing thorium as a substitute for uranium for use in nuclear reactors, claiming the silvery metal is not only cheaper but also safer and emits lower radioactive waste compared with uranium-run reactors. China has already constructed the reactor and expects to start a thorium trial run this month.

Now what

If today's updates make you skeptical, there are some really important points you'd want to ponder as an investor in uranium stocks.

First, even if China can prove thorium's success, commercial production is unlikely to start before the end of the decade at the earliest, given that it can take years to assess the environmental impact of any nuclear fuel. It's unlikely to replace uranium altogether, especially with nuclear energy gaining attention among some economies across the globe as a viable clean-energy option to meet their goals for greenhouse gas emissions.

The International Atomic Energy Agency's latest report, for example, projects global nuclear generating capacity to more than double from 2020 to 792 gigawatts by 2050 in a high-growth scenario as the world transitions from fossil fuels to clean energy. That's up 10% from the agency's previous 2050 projection.

Meanwhile, utilities will have to sign new uranium contracts or renew existing ones to keep their plants up and running. In fact, Morgan Stanley might not be bullish about near months, but it still sees a uranium spot price of $49 per pound by 2024. For perspective, the spot price just crossed $50 as of this writing.

Granted, the Sprott uranium fund is largely driving the uranium markets now, but it has already laid out plans to buy hefty quantities of uranium as investor interest in the fund remains strong. So while uranium stocks could be volatile, long-term investors are more likely to see opportunities on days like today than dump their shares in panic.