Cameco: Why I Started Buying Uranium Stocks Today

by JDH on March 14, 2011

Almost three years has elapsed on this blog since I last mentioned uranium blue chip stock CCO.TO – Cameco Corp. (It was back on May 10, 2008 when I asked the question: Is this a sucker’s rally in uranium?) That’s a long time, but it’s not surprising. Cameco has had issues with it’s Cigar Lake mine, and uranium stocks in general have done nothing, or trended lower, for years.

Until today.

The tragic events in Japan have brought the nuclear industry back into the news, and the news reports I’ve watched have not been positive for the nuclear industry. All nuclear stocks got hammered today. Breathless reporters tell us that this is the end of the nuclear industry as we know it. So what did I do?

I bought Cameco.

Why? Because the time to buy is when there is “blood in the streets”, and there certainly was today. Here’s the chart:

Cameco Corp. Five Year Chart


Since the crash in 2008 Cameco has traded in an uptrend, although with lots of price swings. The uptrend remains intact, although we are now approaching the bottom of the channel. (The red circle is the price action on Monday). Obviously one of two things are likely to happen:

First, I will be wrong, and you will all ridicule me for trying to “catch a falling knife”. The more prudent course of action would be to wait a day or three to see where everything shakes out, and then start buying. That would be a logical approach, made even more logical by a viewing of the chart over the last month:

Cameco Corp. One Month Chart

Interestingly last week, before the earthquake, Cameco fell from a high of over $40 to a low of $36; that’s a 10% swing in one week, which is a lot for blue chip stock. Why was it dropping in advance of the big news? I have no idea; probably just coincidence.

Second, it’s possible I could be correct. Most uranium stocks dropped a lot today, but most of them closed at their highs for the day, meaning bargain hunters moved in. Obviously I was one of them.

Well, sort of. I didn’t actually buy the stock, because further weakness is possible. Instead, in true gambler fashion, I bought the options.

For example, in one of my accounts I bought 5 contracts of the April 32 Cameco calls. I paid $1.50, and I completed the trade at 1:48 pm. My total investment, including commissions, was $766.24, so if I’m wrong, all I lose is $766. However, if Cameco goes back to the $40 price it touched last week, my options are worth at least $8 (calculated as the $40 share price less the $32 strike price), which is a nice little return on my money.

By the end of the day the bid ask was $1.45 to $1.76, so if we get any follow through to the upside in the next week or two, I will profit.

So even though I’m gambling by buying options, I’m not risking much, and the reward could be large.

One final thought: I totally disagree with all of the television talking heads who are calling this the end of the nuclear age. The nuclear age ended in the United States thirty years ago (do you remember when a new nuclear power plant was built in the U.S.?). It’s the rest of the world that is going nuclear, and for good reason: there is no other choice.

I heard a talking head on CNBS today say that the solution is to build offshore wind farms. That’s a brilliant solution, provided that:

  • the wind always blows;
  • the power can be sent inland (I’m guessing offshore wind farms won’t help the central United States);
  • China is willing to sell us enough rare earths to build these windmills; and
  • no-one minds the noise (if you’ve ever been near one of these things, you’ll know how noisy they are).

The wind doesn’t always blow, and the sun doesn’t always shine, so the dream of the sun and wind powering our futures are premature, at best. Oil is not the answer, because unless we are willing to keep fighting foreign wars, the supply is rapidly diminishing. Coal pollutes.

Yes, nuclear is very dangerous, particularly when using 40 year old designs as are in use in the reactors in question in Japan. (Can you imagine trying to use a 40 year old computer today?). But fighting wars in Iraq is dangerous, and breathing polluted air is dangerous. Energy is dangerous, so unless we want to live in the dark, we only have one logical choice: nuclear. There is enough uranium in North America to power North America for many generations; it’s our only option.

So, despite the tragedy in Japan, we have no choice. We must devote our time and money to building safe nuclear reactors (preferably not on earthquake fault lines), and we must do it now.

Even if we don’t, the rest of the world is, and that’s why I was buying today.

I’ll report back in my normal time slot on Saturday morning with an update.

Thanks for reading; feel free to post your comments below, or over on the Buy High Sell Higher Forum.

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