Uranium Sector's Bludgeoning Sounds Familiar

Todd Shriber
Printer Friendly Version

Good grief, these are not good days to be investing in the uranium sector. This is a sector littered with small-cap stocks, so its somewhat speculative to begin with, and rather than run down the carnage seen on a stock-by-stock basis, it is easier to paint the picture with the Global X Uranium ETF (URA_. URA is less than six months old, but has probably become a household name recently, shedding more than 25% in the past week on the back of Japan's grim prognosis for nuclear power.

The largest earthquake on record to strike Japan and resulting tsunami have brought the world's worst fears about nuclear power to real life. Just as an anecdote, I'm guessing prior to last week, the last time I had a conversation about Three-Mile Island or Chernobyl was in a high school history class 15 or 16 years ago. Since Saturday, I have heard folks mention Chernobyl a dozen times and that is not counting the pundits on TV.

This has created a nightmare scenario for uranium stocks. Japan is the world's third-largest consumer of nuclear power behind the U.S. and France. At least it was. Jumping many steps ahead, even if the country is able to contain the nuclear fallout it is facing, it may not run to embrace nuclear energy after that.

As is the case with situations like this, reactions are usually of the knee-jerk variety. On Tuesday, Germany said its nuclear facilities will undergo exhaustive safety inspections and that it will put any new nuclear projects on hold. The U.K. said it is planning its own safety examinations of nuclear facilities and the Swiss put the brakes on some nuclear projects as well.

Cameco, the largest uranium miner by market value trading on a U.S. exchange, tried to assuage investors' concern today by saying the impact of the Japan crisis on the company should be minimal and that the company is moving forward with plans to double uranium production. You see, China and India, both clamoring for any power sources they can get their hands on, are expected to be the dominant uranium buyers in the coming years. Barron's chimed in on Monday with a bullish piece on Cameco (CCJ) and the stock was down only 5 cents today.

All of this should sound very familiar to investors that follow the energy sector. Uranium's problems are eerily reminiscent to the issues the oil industry is still facing in the wake of the Gulf of Mexico oil spill. The world interprets one problem to be part of a broader trend and the market and politicians react to punish that sector.

In my humble opinion, the news out of Germany, the U.K. and Switzerland is akin to a moratorium on nuclear power use. Now the big question from the perspective of an investor or trader becomes is there opportunity with securities like Cameco or URA? It is a good question to ask. After all, buying BP (BP) in June or July proved to be a very smart move.

Disclosure: I am long URA.