Heavy metal worth the investment

Before the financial crisis in 2008, the world was a much more promising place.

Commodities were cruising along, precious metals were doing well, stocks were on a tear.

Then it all ended. Not really that shocking… the markets are constantly in flux between booms and busts. Of course once the government or the Federal Reserve get more deeply involved in the economic cycle, the more dangerous the cycles become.

And that brings us to the bizzarro world that we live in today where the Fed and most of the world’s central banks have been “easing” for nearly a decade, pumping huge amounts of cash into the system that the banks and sovereign wealth funds have stuffed away in their vaults to build and consolidate their own wealth and power.

As bad as that is, we should always remember this encouraging fact: no matter how hard governments and industry try to fix the markets in their favor, the world changes without their control or permission. Plus, all the manipulation has a cost.

Recently we’ve heard that the major banks have been manipulating gold and silver prices all the way back to 1999. This isn’t an assertion; they admitted to it. They fixed LIBOR rates (short-term rates the rate banks charge each other for short-term loans). They fixed the housing market and real estate. And not just in the U.S., but around the world.

We can see it as an opportunity for a new dawn. It’s always better to find the sectors that are bottoming rather than the ones that are peaking.

In this case, I’m talking about uranium. If you’ve been a long-time reader, you know Bob Livingston was very bullish on uranium for many years while it was on the rise. If you listened, you did very well right along with him. Right now, uranium is a prime example of how a commodity goes from a superstar to a bum overnight, and how Wall Street’s ‘analysts’ can turn so quickly from unbridled optimism to abject pessimism.

It also shows how bad these ‘market pros’ really are at seeing the market’s real trends.

In 2006, uranium peaked at nearly $140 a pound. Today it’s trading at around $20 a pound. Much of this has to do with analysts’ optimism for a growing China.

China was, and is, in the midst of converting coal plants to cleaner energy sources. Coal plants were cheap and easy to build, and China had no problem getting cheap coal to burn.

But pollution has gotten very bad all over China and it has realized that a large, growing, modernizing population needs cleaner energy. Unlike the West, China saw nuclear energy as a good solution.

Aside from the waste, it’s a very clean fuel, especially on a large scale. Also, nowadays, there are only two or three designs for nuclear plants. In the early days of nuclear power, each plant was built from scratch, which led to all sorts of quality control problems. Now the parts are standardized and building a quality facility is much cheaper and easier than it was in the past.

This is important to remember because another key reason nuclear power lost favor was the aftermath of the major tsunami in Japan that destroyed Fukushima’s nuclear power plant. To this day, Japan has only three of its 42 nuclear plants back on line.

This has washed out many of the competitors in the sector. And it means the players left are the biggest and strongest of the bunch.

The point is, now is a very good time to start looking to uranium stocks to buy.

China has 20 nuclear power plants under construction right now, and the country plans on building 40 in the next five years. Think about that scale for a minute…

India has planned to increase its nuclear energy generation by more than an order of magnitude in the next decade. And Japan is going back online with its nukes.

Even the U.S. is offering $1 billion in tax breaks for nuclear energy generation in 2017.

If you’re interested in a stake in yellowcake, as uranium fuel is known, there are a couple of conservative ways to move in now. The first is the miner Cameco (NYSE: CCJ), the world’s largest producer of quality uranium. It produces about 20 percent of the world’s uranium, and mostly from its Cigar Lake mine in Saskatchewan, Canada. Because of long-term contracts, it’s currently making about $43 a pound on its production, even with prices in the $20s. A price move to the $50s or above would mean a huge revival in its bottom line. And given the long-term trends in place, the $50s is easily attainable.

Another conservative choice is an exchange traded fund that focuses on uranium miners. Here, you are diversifying your risk and adding upside opportunity with smaller miners that will vault up in price when the sector turns around.

Global X Uranium ETF (NYSE: URA) and Market Vectors Nuclear Energy ETF (NYSE: NLR) are the clear top choices. I prefer URA because it focuses on the miners and a wider variety of players, including Cameco. NLR focuses on companies with a market cap above $150 million and a monthly trading volume of 250,000 shares. That’s a bit too restrictive to me, at this point, but if that fits your investing style the it’s a good choice.

— GS Early

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