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How to Speculate on Uranium

by Lobo Tiggre
Wednesday, January 02, 12:04pm, UTC, 2019

A reader found my analysis of the uranium market compelling, and asked how someone new to uranium should start speculating. He’s probably not alone, so here are my thoughts.

The very first thing to be clear on is that this is speculation, not investing.

Even if I bought the most profitable and undervalued producer in the world, it would still be speculation, not investment. That’s because, for all the analysis we can throw at the market trends, we’re still making guesses. They’re educated guesses, but guesses nonetheless. And those guesses can be wrong—very wrong.

In practical terms, this is not like Warren Buffett buying Coca Cola stock. People around the world might drink a bit more or fewer Coke products than expected, but prices don’t drop 50% in a week. Uranium prices, however, could tank like that if there’s another nuclear disaster. They could also go into reverse if a large player like Japan started dumping stockpiles at below the cost of production again.

Don’t get me wrong: I remain extremely bullish on uranium. Uranium can’t be substituted anytime soon. It can’t be substituted at all in the new nuclear arms race that’s getting going. And enough can’t be supplied at current prices. The fundamentals and the technicals are very positive. This happening at a time when the outlook on Wall Street has turned quite negative could really light a fire under uranium stocks in 2019.

But there is always risk in speculation—that’s why there’s so much money to be made.

Now, to get started, I recommend the article I already wrote with five tips for starting out as a speculator.

With that general guidance in mind, the next thing to be clear on is the balance of risk and reward you’re comfortable with.

  • If I were cautious and wanted to minimize the risk of taking any losses but wanted to gain some exposure to the upside in uranium, I’d stay away from the companies and go for the metal itself. Beware that some of the uranium ETFs are really nuclear-industry company ETFs. That’s not the same as positioning yourself in the metal itself. Uranium isn’t something I want to stuff in my mattress, of course. Fortunately, there’s Uranium Participation Corp. (U.TO), which does nothing but own and hold uranium on behalf of shareholders. This is the safest and most convenient way I can think of to speculate on uranium.
  • If I were relatively cautious and willing to accept more risk in search of higher returns, I’d look for the biggest and financially healthiest producer I could buy stock in. There are few options, but to me, there’s no question that the best in the class is Canada’s Cameco Corp. (CCJ, CCO.TO). The stock tracked rising uranium well in 2018, and I expect it to do the same in 2019.
  • If I had money to speculate with that I could afford to lose and wanted to swing for the bleachers, I’d buy the best of the smaller companies that have the most explosive upside. That would include smaller producers, explorers, developers, and land banks. Beware, however; people say that a rising tide lifts all ships, but it doesn’t lift those with huge gaping holes in their hulls, and the ones with less obvious leaks tend to sink back down pretty quickly as well. High grade, for example, won’t help if the deposit is in a place where a uranium mine could never be built. You can’t just throw darts at a board here. Due diligence is still and always required. Look for high margins in projects that can actually get permitted.

As I’m sure will be no surprise to you, I am personally in the third group. I don’t own Uranium Participation or Cameco. I do own stocks in some of the smaller companies I think are among the best in the field, and am looking for more. If you’d like to know which ones, please subscribe to The Independent Speculator.

That said, the tips above for those new to the uranium space should get you started in the right direction.

Good luck, and, as always, caveat emptor,

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