Please ensure Javascript is enabled for purposes of website accessibility

Why Cameco, Uranium Energy, and Uranium Royalty Stocks Are Glowing Green

By Rich Smith – Nov 3, 2021 at 2:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Cameco started the rally, and now it's picking up steam.

What happened

Uranium prices are in a funk -- down 12% over the past week, and down 15% from their recent highs of mid-September -- but don't try to tell that to uranium investors.  

As of 12:50 p.m. EDT Wednesday, shares of uranium mining company Cameco (CCJ 2.37%) surged 8.5%, followed in close succession by Uranium Energy (UEC 3.04%), up 7.6%; and Uranium Royalty Corp (UROY 3.19%), up 4.9%.

Two people hold hands in a field of flowers outside a nuclear power station

Image source: Getty Images.

So what

What's got uranium investors all hot and bothered today? In a word: Cameco -- and the upgrade that uranium stock just received from Bank of America.

As TheFly.com reports today, BofA upped its rating on Cameco stock from neutral to buy, and raised its price target on the shares to 40 Canadian dollars (about $32.23). That's about 18% above where Cameco stock trades right now.

As the analyst explained, Cameco hasn't been a particularly strong profits performer lately. (In fact, S&P Global Market Intelligence data show that it has lost money in four of the last five quarters, and three of the last five years!) But BofA sees prospects for stronger growth in the nuclear industry as the world seeks cost-effective means of curbing global warming and decarbonizing the economy -- perhaps faster than anyone expects.

Now what

Indeed, according to the analyst, uranium spot prices could rise as high as $60 a pound by the first quarter of next year -- and that would be good news not just for Cameco, but for Uranium Energy and Uranium Royalty as well. In case you're wondering, neither of those two has been doing very well on the profits front either. Each has lost money in each of the last five years, so they could really use a boost in the sales price of their primary product.

There is, however, one caveat that uranium investors should keep in mind even as they wax optimistic over this upgrade. According to experts at MiningReview.com, Bank of America's $60 price target for uranium just happens to also be the price point at which it will become sufficiently profitable to mine uranium, to "incentivize" uranium producers to produce more uranium. So if uranium does hit $60 early next year, you can anticipate an influx of new supply that will drive prices right back down again.

Such is the adventure of investing in cyclical stocks.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.