Monday, August 4, 2014
One of the biggest "no-brainer" investments in the markets today comes down to one idea...
I've thought a lot about this idea over the last couple years. And I've talked to top resource experts about it. Here's what it comes down to:
Economics trump emotions... eventually.
Negative sentiment can push asset prices down to extreme levels... levels that don't make any economic sense. The stronger that sentiment is, the longer those levels can hold.
But at some point, inevitably, market forces win out... And folks who placed a bet when sentiment was negative collect large profits.
That's what I expect to happen with uranium.
If you're a longtime Growth Stock Wire reader, you're familiar with the uranium story. I've been covering it in these pages since November 2013.
Uranium fuels nuclear power stations... and it's one of the most hated assets on the planet.
That's due partly to the high-profile disaster at Japan's Fukushima Daiichi nuclear power plant. Public sentiment toward nuclear power soured to such a degree that several countries shut down their reactors.
As you can see in the chart below, the March 2011 disaster and its aftermath cut a budding uranium rally short. Uranium resumed a bear market that originally began in 2007... It's now sitting near nine-year lows.
The spot price of uranium is just under $30 a pound. According to billionaire resource investor Rick Rule, the average cost to produce one pound of uranium is $70. Many producers are losing money on every pound of uranium they sell.
Some companies will slow production... Others will go out of business. Either way, if uranium prices stay lower than the costs of production, supply will dry up.
But demand is still strong. Nuclear power is currently being used to produce about 11% of the world's electricity. And it's the source of almost 20% of U.S. electricity. As Rick says, either we use nuclear power or the lights go out.
It's also cleaner than coal. And cheaper than other "clean" alternatives: As of late 2012, wind energy cost between $0.04 and $0.20 per kilowatt-hour (KwH). Solar energy cost between $0.06 and $0.59 per KwH. And nuclear power cost just over $0.02 per KwH.
Eventually, economics will trump negative emotions. Governments will restart their nuclear programs... And prices will rise. It's already starting to happen... Just a few weeks ago, Japan's Nuclear Regulation Authority gave clearance to start up two nuclear reactors.
The lowest-volatility way to profit from rising uranium prices is buying shares of Canada-based Uranium Participation Corp. (U on the Toronto Stock Exchange or URPTF on the "pink sheets"). This company simply stores uranium... And its share price tracks the spot price of uranium.
But if you're looking for a little leverage on uranium, consider the Global X Uranium Fund (URA), which holds a basket of 23 uranium producers and explorers (and a 9% weighting in Uranium Participation Corp). Its biggest position (24%) is in Canadian producer Cameco... the largest publicly traded uranium producer in the world.
As you can see in the chart below, URA is down about 77% from its 2011 peak. But it looks like it's "hammering out" a bottom just under $15 a share.
URA could skyrocket from these depressed levels. From mid-2010 to early 2011, the spot price of uranium rose 79%. Cameco nearly doubled. Smaller uranium stocks like Fission Uranium Corp. and Denison Mines, two more holdings in URA, rose 254% and 275%, respectively.
There's no guarantee that uranium is finally ready to turn around. I've been early on this trade so far. But the upside potential is worth it.
The time to buy is when sentiment is still negative. Sooner or later, economics will trump emotions. And the gains could be extraordinary.
Amber Lee Mason
Matt Badiali says another commodity is at "no-brainer" prices right now – coal. "If prices don't head higher, most coal producers will have to close some of their mines or face bankruptcy," he says. "This is exactly what contrarian investors like to see." Get all the details here.
In this classic interview, Rick Rule reveals how to master the giant cycles in natural resources... and make life-changing profits. If you're looking to make money in the resource sector, this interview is a must-read.
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