Small Cap Uranium E & P Stocks

The move up in uranium stocks can make the average investor fell like he has missed the boat with respect to buying into this market. For example, stock A has a good earnings release and then sees a pop of say 12%. Your average investor sees this move and buys the stock. This average investor does not know that he or she has bought the stock at a very expensive number and wakes up to see that the stock has pulled back 5% in the open the next day. This usually what leads to the buy and hold philosophy. It is not that the person doesnt want to trade, but does not understand the principles involved and when to sell, not just when to buy. Uranium exploration and production companies have seen a rather large move recently. It is very possible that this run could be long and very abrupt as the rally seen in 2006 and 2007. Although nothing is concrete, but there may be reasons to buy here. First and foremost is the runup in uranium prices over the past couple of months. The runup is also bolstered by China possibly increasing nuclear power plants much more than thought. Uranium is generally sold under long term contracts (to see an example of this, check CCJ Cameco website for info on their legacy contracts). Any noncontracted uranium is sold via the spot market. This spot market has to do with supply and demand and most of the smaller companies will sell all of the uranium at the spot price, depending on the current bid (what someone will pay) of the country/electricity producer. Uranium is very interesting as most of the money used to produce electricity is building the nuclear reactor. Not only are these expensive, but there is no way going back as they cannot be converted to a coal fired or natural gas plant. Once the plant is built, the uranium is very cheap with respect to the amount of energy it produces. Right now the spot price is about $75 a pound, give or take a little. It is guessed that the market could easily absorb a price increase to $300 without causing a major problem for nuclear power. One thing to remember is that it is also very difficult for a company to start mining as it is a different process than say mining copper. Uranium is found all over the world. Canada and Australia have very large amounts, but many places not only are hard to mine or impossible (Australia has strict rules on this and has even outlawed it), but formations are very dense and not very easy to find, kind of a needle in a hay stack. The example copper, will usally be in an area for miles, so if the center of the formation is missed you can still mine it. Uranium is over a smaller area, so if the miner misses the center, he may miss it all together and be out the money it took to dig the mine. Secondly, it is radioactive, and there are very strict rules with respect to mining it. The training is very specific and the mines are generally placed in very cold temperatures to mine it. Also, no one wants a mine in their backyard, so getting the permits to dig could be impossible. Could you imagine a uranium mine just south of Los Angeles?
All said, there are quite a few smaller upstarts to consider. The first is a company I own. DNN has a market cap of around $1 billion. This company is fairly large, but is much smaller than CCJ. DNN has sizeable uranium mines and positions and is much larger than some of the others on this list. URZ, URRE, URG, and UEC are from $200 million to a half billion in size. URRE has had the largest run, and that has been about 300% over the last month. The other companies are up 100% to 200% within that time frame. USU is the last company which I also own. It doesnt mine uranium, but breaks down nuclear weapons from the cold war era between Russia and the US. They convert this and also can convert tails already used in power plants. If one is risk averse I would tell them to go with CCJ, or even move into SHAW. SHAW builds the nuclear power plants and is currently building quite a few in China. Long term any of these stocks are good. The current environment in the US leads to the belief that there may be some inflation around the corner. Huge amounts of liquity from QE 1 and 2, plus very low interest rates could push all commodities higher. Remember if you drop it on your foot and it hurts, it is probably something you should invest in. I own USU, DNN, UEC.

Two Uranium stocks that have seen interest

With the news that China may be building more nuclear power plants than originally thought, there has been a big move upward in many within the space. Two stocks have seen large gaps upward as Cameco has announced it will be increasing production. CCJ is not as aggressive with respect to uranium pricing do to its legacy contracts so if one is interested in large moves one may want to start a position in DNN or URRE. Both of these stocks are highly volatile, but with good reason. They don't offer their uranium at contracted prices like Cameco, and will assume the full spot price when pricing moves upward. I just placed a position last week with DNN. Also have added USU. Keep watching these names as they will all move higher quickly on spot pricing going upward.

PEAK OIL IS REAL

Take a look at this new information on peak oil. T. Boone Pickens looks to be right although it will take a little longer than expected. Going back to 2005 and annualizing production increases in conventional oil production to .9% per year. The article is by Doug Hornig and can be accessed at http://www.uranium-stocks.net/washington-capitulates-peak-oil-is-real/

Cameco is the best name in space

I still think this company will reap the benefits over the next few years with their legacy contracts. The price of uranium seems to have stabilized, although the spot market and standard price have gotten somewhat closer. CCJ

Cameco and the rest of the nuclear stocks get hammered

I purchased some more of the January 2011 calls on Cameco today. Helped bring down the cost on what I paid for them a few days earlier. This stock did have a very good earnings release, but seems that many following the stock do not understand the nature of their business and when product gets delivered. If you take a look at their earnings, you will see a large increase due to uranium delivered that was supposed to be delivered and was delayed from the second quarter. This was not a loss due to financial investments as the article stated. They delivered uranium that was supposed to delivered earlier. A decent percentage of their profits come from gold and this is very bullish also. If you didnt buy today you can long term, company is a buy. Also take a look at their legacy contracts.

CAMECO'S EARNINGS ARE INTERESTING AS USUAL

Looking at Cameco's earnings announcement, it can be taken a few ways. It looks as though they had a blow out quarter and year as some deferred earnings were taken in this quarter. It wasnt a small amount either as it looks as there we 2.6 million pounds. This amount pushed their earnings from $.08 to $.49. It enabled Cameco to have another record year and earnings. I have been following this stock for sometime and have never seen an earnings report this optimistic. As a general rule, this company is much more negative and seems to be somewhat secretive with respect to their business. Things have changed with their stock pushed down to a little under $16 dollars. No matter how you look at it, Cameco is trying to get their stock price pushed back up. When watching the options on this stock, right at the end of the day Friday, it either someone or a few people bought the February 09 $17.5 calls. Around 300 were purchased. It looks like someone or a few people are looking for this stock to have a big move. Looking at revenues they had $918 million, which was almost double what the Street was looking for. Looking over their statement, I would guess the stock goes much higher, so wait a few days for it to come down. If the stock moves lower, which I don't think will happen, you can buy some and sell it on its move upward in the next few days.

Cameco posts earnings after the bell

Cameco (CCJ) has earnings today. The Street is looking for $.34 per share.