Uranium stocks have suddenly turned red-hot and we have one of the best of them on our Canada Report Recommended List.
Cameco Corp. (NYSE:CCJ) is the largest uranium producer in the world. It operates out of Saskatchewan, which is a rich storehouse of commodities that are in high demand right now, including potash and oil.
We first recommended Cameco to Canada Report readers in August 2008 when the shares were trading at $32.66. Within weeks, Lehman Brothers collapsed and the world was plunged into the worst financial crisis since the Great Depression. Cameco stock fell to a low of $12.95 in February 2009 as the price of uranium tumbled.
But all that is history. Cameco shares have moved sharply higher in recent weeks thanks to a surge in world uranium prices. After hovering in the low $40s per pound range for the first half of the year, the price began to move up in August and reached $48 a pound in September. Since then, it has spiked dramatically, trading this week at more than $60 a pound.
TD Securities says the price jump is due to new demand from China and has raised its 2011 forecast to $62.50 a pound with a $75 target in 2012.
The big price move has prompted renewed investor interest in Cameco. As recently as July, you could have purchased the stock for around $21. Now it is trading in the $37 range and is poised to move a lot higher.
The price run-up happened despite a 43% drop in third-quarter net earnings compared to 2009. On Nov. 8, the company reported a profit of $98 million (25c a share) down from $172 million (44c a share) last year (figures in Canadian currency). For the first nine months of the 2010 fiscal year, earnings were $308 million (78c a share) compared to $501 million ($1.29 a share) last year.
However, CEO Jerry Grandey put a positive spin on the results in his comments. “Production volumes are 17% higher than in 2009, while production costs are lower,” he said. “Our U.S. dollar realized prices have also risen, illustrating the strength of our contract portfolio.
“As we advised earlier this year, revenues were lower in the third quarter due to the timing of uranium deliveries. We expect about one-third of our uranium sales will be delivered in the fourth quarter.
“We are on track to double our annual uranium production from existing assets by 2018. Our growth strategy is in place to ensure we remain among the world’s leading uranium suppliers to those who choose to use safe, clean and reliable nuclear power.”
The stock has already made a big move but is still at a level where I consider it to be a buy for those who want exposure to what is shaping up to be a new bull market in uranium.
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