Uranium stocks are booming, and it isn't just another rally -- nearly every uranium stock listed in the U.S. has more than doubled in 2021, which is almost unthinkable given that the uranium industry has struggled to sustain, let alone thrive, after the Fukushima Daiichi nuclear disaster in 2011 nearly wiped out nuclear energy from the global energy map.
To be sure, several nations are reconsidering nuclear energy as a viable source of alternative fuel to help them meet their decarbonization goals, which should also boost demand for nuclear fuel, uranium. But that's not the only reason why uranium stocks are soaring. The recent launch of the world's largest physical uranium exchange-traded fund (ETF), the Sprott Physical Uranium Trust Fund (SRUU.F -3.88%) has been an even bigger catalyst.
Yet this could just be the beginning of the rally in uranium stocks, and while it could be a bumpy ride, here are the best three uranium stocks you could buy right now to play along.
Pay attention when this uranium company speaks
There are two reasons investors seeking exposure to uranium might want to pick Cameco (CCJ 0.16%) shares: Cameco is one of the world's largest uranium miners, and its moves can have a strong bearing on the uranium industry, specifically on the supply side. For example, Cameco was among the first uranium miners to curtail production dramatically over the past couple of years or so to help ease oversupply concerns in the uranium market and support uranium prices -- a move that was applauded by other players in the uranium industry.
Image source: Getty Images.
This operational flexibility, alongside strong financials, are huge competitive advantages to have, especially at a time when the uranium industry is at an inflection point. Uranium prices hit nine-year highs in the month of September as the Sprott Physical Uranium Trust Fund aggressively mopped up uranium from the spot market.
Here's what you need to understand though: For Cameco, the spot market isn't the real business driver -- long-term contracts from utilities are. But with supply in the spot market thinning thanks largely to the Sprott fund's purchases, utilities are back to negotiating uranium contracts and that's boosting long-term uranium prices higher. According to data from Cameco, long-term uranium price jumped almost 25% between August and October.
In fact, at Cameco's third-quarter earnings call, management even called the current uranium market "more constructive" that it has seen "in a very long time." Cameco has its pulse on the uranium market, so those words coming from the miner are hugely encouraging and signal stronger days ahead for the company. With Cameco also ending the third quarter with solid financials including $1.4 billion in cash versus only $1 billion in debt, I think Cameco stock is a solid buy right now.
The only uranium growth stock you could risk buying
Uranium Energy (UEC -1.78%) is perhaps the boldest uranium stock pick I'm making right now, because unlike Cameco which is an established uranium miner, Uranium Energy hasn't generated any revenue since 2015. So why do I have my eyes on Uranium Energy shares? In one word: acquisition. Let me explain.
So far this year, Uranium Energy hasn't produced uranium but is instead buying yellowcake from the spot market in a bid to sell it later to make some money off rising uranium prices. Now that's a move based purely on speculation about spot uranium prices, and not the kind of business strategy I'd put my money on. But Uranium Energy sprung a surprise earlier in November when it announced its intention to acquire the American operations from Uranium One, the world's fourth-largest uranium producer that's controlled by Rosatam, Russia's State Atomic Energy Corporation.
Here's why it's a meaningful deal: The $112 million cash acquisition includes production-ready assets in Wyoming's Powder River Basin, including one of the largest uranium processing facilities in the U.S. with an annual licensed capacity of 2.5 million pounds of uranium. Once acquired, these assets could start generating revenues for Uranium Energy right away.
Also, Uranium Energy now doesn't need to build a plant at its Reno Creek project anymore given its proximity to Wyoming assets, thereby saving the company upfront capital that it can put to use elsewhere.
To be sure, Uranium Energy may not start production anytime soon as it awaits higher uranium prices, but it has now positioned itself to secure utility contracts from both Texas and Wyoming and become one of the largest uranium mining companies in the U.S. in terms of capacity. That's an attractive proposition to bet on if you're willing to stomach the risks that small-cap stocks bring along.
Want to bet on uranium prices? Buy the price mover
Finally, if you really want to play any rally in spot uranium prices, buying units of the Sprott Physical Uranium Trust Fund is your best bet.
As I hinted earlier, the Sprott Fund has had a major role to play in the recent rally in uranium prices as it's been buying uranium aggressively from the spot market ever since its launch in July. As of Nov. 26, the fund had accumulated nearly 41 million pounds of uranium, versus only 18.3 million pounds on July 31.
The Sprott Fund is now hungry for growth and doesn't want to miss any opportunity to exploit strong investor interest in uranium while it lasts. So here's what the Fund's doing now: Its latest regulatory filing seeks approval to issue units worth up to $3.5 billion during the 25-month period commencing Aug. 10, 2021. To think of it, the Fund filed an offering of only $1.3 billion worth in units in September.
The higher the interest in uranium, the larger the number of its units the Sprott Fund should be able to sell. And as the number of units it sells rises, it'll have to buy as much of the underlying commodity -- which is uranium in its case -- to hold against those units. That's pretty much the only thing spot uranium prices require to keep moving higher.
The Sprott Physical Uranium Trust Fund is even buying the North Shore Global Uranium Mining ETF to create a Sprott uranium equity ETF, which is yet another reflection of the strong investor interest in uranium that the giant fund is seeing right now. For all you know, the Sprott Physical Uranium Trust ETF could turn out to be one of your biggest winning uranium stocks in the long run.
