Does Uranium have a bright role in the energy industry of 2030?
Will Uranium and Uranium stocks have a bright future in the energy industry of 2030? There are three key factors that will determine Uranium’s future.
Innovations in carbon capture and storage: Climate change is real and we need to produce electricity in a way that does not make the planet a solar cooker. That means oil, gas, and coal need to go. Unless someone invents reliable carbon capture and storage.
Innovations in renewable energy and energy storage: Renewables have not replaced fossil fuels because they don’t produce a) the electricity / heat / power required in heavy industries and b) we do not have large scale reliable energy storage. The cost of producing energy from renewables continues to fall and several bright minds are working on energy storage solutions. Are breakthroughs around the corner?
The strength of the climate movement: If governments of the major energy consumers align on the need for climate action, nuclear energy offers a well understood pathway to produce reliable base load power that can power industries and critical infrastructure like hospitals, airports etc. Several bright minds are also working on making nuclear cheaper and safer. But will the world ever get past its fear of nuclear waste and weaponization of nuclear technology?
Does history have some answers?
Let’s take a look at the monthly stock price chart for CCJ (Cameco Corporation) going back to 1987. CCJ is a good proxy for the Uranium industry because it is a large producer of uranium based in a developed market (Canada). The innovations in Nuclear technology are also expected to come from developed markets, therefore any signals of a renaissance of nuclear energy may reflect in CCJ early.
Looking back, every time climate change was a big deal in the social consciousness OR a debate around sustainable energy free from dependence on oil / Middle East states came up, CCJ saw its value rise.
2003 to 2007: Post 9/11 and Dotcom Crash
2009 to 2011: Post Global Financial Crisis and Beginning of the New Climate Movement
2020 to ??: Post Covid and Second Act of the New Climate Movement
Technical Analysis
Our view on CCJ as of Oct 30, 2023 when the price is at 38 USD is as follows.
Market context: 10 year yields are at significantly high levels, Fed funds rate in US are also remain high, and inflation will reaccelerate due to the conflicts in the Middle East and Russia. The winter temperatures for 2023 and hence the impact on energy prices remains a wildcard.
Short term view (3 to 6 months): Neutral to Bearish
We believe a good time to get into CCJ was between 2020 and 2022. Short term options are rarely a good strategy on commodity stocks and we played this symbol by investing in commons OR really long date calls (2 years out).
From a technical analysis POV, it appears the stock wants to retest resistance around the 45 USD mark. A retest of the recent breakout level of 33 is also possible. There are a lot of mixed signals therefore we are not taking short term positions even though year end volatility is expected
Medium term view (1 year): Neutral to Bullish
We are buyers of any pullback to 30 or below. We believe we are in a regime where the world will experience scarcity in materials that are essential for producing and powering the automation revolution. We also believe that the need for climate action will necessitate investment in nuclear technology. And any improvements in nuclear technology will spark rallies.
We are planning to buy commons or longer dated options (1-2 years out) if we get pullbacks below 30
Long term view: Bullish (but over a long time horizon)
Although we are bullish, this is NOT our best idea. Our allocation for this idea will remain small compared to our larger portfolio because this is a single company. An alternative for us would be to invest in an ETF like URA.
We are giving this idea some attention with the expectation that the stock retests prior all time highs of 56.
