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I love it when a plan comes together.
Going into 2023 my portfolio was long many of the artificial intelligence stocks that drove the stock market higher in the first half of the year. This includes names like Alphabet (GOOGL), Amazon (AMZN), and Palantir Technologies (PLTR).
And not only was I long; I was long in size, meaning they accounted for a large percentage of my portfolio.
But going into the summer, I had a feeling most of the “juice” had been squeezed from these stocks. And I correctly predicted a new crop of stocks would lead markets in the second half of the year…
…and one in particular has been surging as of late.
Let’s Get Radioactive
Uranium has long been on my investing radar.
Back in my early analyst days in 2012, I prepared a report on a company called Uranium One for my boss Grant Williams (co-founder of Real Vision).
This was a year after the Fukushima nuclear disaster in Japan. The event - where a massive earthquake caused three nuclear plants to meltdown - had cratered uranium prices as people viewed nuclear technology as unsafe:
At the same time the US was in the midst of an energy renaissance thanks to the hydraulic fracturing or “fracking” boom, as the unconventional drilling technique unleashed loads of cheap oil and gas in the US:
Pairing fracking technology with America’s plethora of reserves made the US the largest producer of natural gas…
…and oil…
…in the world. But while fracking was clearly a novel technology for extracting oil and gas, it came with a lot of environmental issues including water contamination, air pollution, and wastewater disposal problems.
And once I started digging into the uranium market for Grant, it became clear the US needed more carbon-free nuclear and less fracking.
But as it turned out, I was early…
…Which Is the Same Thing as Being Wrong
I quickly become obsessed with nuclear energy.
From a fundamental standpoint, it seemed far and away the best energy generation technology in terms of energy output and environmental impact.
See, nuclear energy generates electricity without emitting greenhouse gases or air pollutants. They also produce minimal carbon dioxide (CO2) emissions during their operational phase.
Nuclear energy also has an incredibly high energy density, meaning a small amount of nuclear fuel can produce a significant amount of energy. This contrasts with renewable sources like wind and solar, which depend on weather conditions and require larger land areas to generate comparable energy outputs.
My thinking was governments around the world were seeking out clean energy sources to combat the effects of climate change. And with nuclear power, you could provide both clean energy and enjoy low carbon emissions.
It seemed like a win-win. I had high conviction on this trade and recommended Uranium One as a “buy” to Grant.
This turned out to be a good call, as Uranium One was acquired for $2.8 billion a year later…
…sending the stock up +80% overnight (my first great call as a newly minted analyst).
But while I got the Uranium One call right, I missed the bigger picture.
The Trade That Refused to Work
I viewed the Uranium One acquisition as a watershed moment in the uranium market.
After all, prices of uranium stocks like Canadian miner Cameco (CCJ) and French nuclear reactor manufacturer Areva were decimated after Fukushima.
And with such strong fundamentals (i.e. low carbon emissions, cheap energy generation, etc.) I was convinced the sector would soon bounce back.
But I was wrong. From Uranium One’s acquisition in January 2013 to January 2020, shares of Cameco - my preferred vehicle for investing in the uranium market - were down -58%:
While I didn’t own the stock during this period, it remained on my radar as I reasoned the global community would have no choice but to eventually embrace nuclear energy.
And it looks like that me be happening now, but not for the reasons I suspected.
A New Uranium Bull Run is Here
Uranium prices are currently sitting at a 12-year high…
…and there are a few reasons for the recent resurgence.
First is related to my original thesis on Uranium One: cheap and clean energy.
Governments from Washington to Seoul and Paris are seeking energy independence by extending the lifetime of their existing fleet of nuclear reactors, spurred by skyrocketing gas prices in the wake of Russia’s invasion of Ukraine.
Second, a recent coup in the African country of Niger - a major uranium producer - has put upward pressure on prices.
Third, Cameco - the world’s largest uranium miner - recently disclosed that the company will produce less uranium this year than expected.
Lastly, as we talked about a few weeks ago, a “weaker” US dollar is good for commodity prices like uranium.
And I expect the dollar to get even weaker in 2023. That’s because the Federal Reserve is near the end of their interest rate hiking cycle. On the other hand, other major economies are still dealing with high inflation and raising interest rates:
All of these factors are a reason my investment in Cameco (CCJ) has been surging.
My Best Trade of the Summer: Cameco Corp. (CCJ)
It’s been a pretty quiet summer for the markets.
The S&P 500 is flat since June 15th as the index took a breather after a massive run-up to start the year:
But my position in Cameco - which I recommended to Patreon Portfolio members in early August - has been a winner. While the rest of the market has been flat, my position in Cameco is up nearly +18%:
And while I’ve raised my stop loss to lock-in a double-digit gain, I could see this position hitting all-time highs - or +25% higher - by the end of the year:
That’s not to say CCJ shares will go up in a straight line, as shares are currently overbought with a relative strength index (RSI) over 80:
But overall, the future for Cameco and the uranium market looks bright and the fundamentals and technicals are aligned for a major bull run.
I plan to stay invested for now, as my investment thesis that’s 10 years in the making finally comes to fruition.
And if you don’t want to miss any investment recommendations in the future, make sure to join +650 member community on Patreon.
Stay safe out there,
Robert