An astute reader asked me if I might consider investing in some other segments of the nuclear power industry. As bullish as I am on uranium this year, why not have a go at the companies that convert U3O8to UF6(a necessary step in turning the mine product into reactor fuel), for example?
Or for that matter, if I think the resource sector is due for an upturn, why not invest in companies that provide services or equipment to exploration and mining companies? I’ve said that share prices of Fred Davidson’s Energold Drilling, for example, tend to serve as a proxy for the junior resource sector. And selling drilling services—or drill rods, for that matter—has to be less risky than exploration itself. Why haven’t I bought that stock?
The answer to both is that if I were a Warren Buffett-type investor, looking to own companies with solid businesses and “moats” to defend against competition, I might buy such stocks.
But I’m not an investor; I’m a speculator.
Let’s say uranium prices go up. That alone doesn’t mean conversion companies will see fatter profit margins. Higher demand might, in time, enable converters to boost profit margins. But absent a game-changing innovation, margins aren’t going to go through the roof.
Warren Buffett doesn’t buy Coca-Cola because he expects margins to suddenly leap for the sky. He buys it because it’s a solid business that he expects will make money over time. Maybe he should look at uranium conversion and great drilling companies.
That’s not what I’m looking for. I’m willing to take on additional risk in search of stocks that can go through the roof in short order.
What happens to a uranium producer making, say, $1 per pound at $30 uranium, when uranium rises to $40 per pound? With nothing else changing, the company’s profit margin has just increased tenfold. That’s the sort of thing that can—and frequently does—produce a hockey-stick stock chart for a mining company.
The same logic applies when an exploration company makes an economic discovery. It’s not margins that increase, but the asset value itself. The company literally goes from worthless to worth… whatever millions or billions the deposit turns out to be worth. This is how hockey-stick stock charts are made—every year—in the junior resource sector.
I see the potential for hockey-stick results this year in every single stock in my portfolio today.
Will I get them all right?
Of course not.
However, it’s possible to lose only a finite amount, while there’s no limit on the upside in any given speculation. That’s why, over time, savvy speculators can build fortunes.
You’re welcome, of course, to subscribe to The Independent Speculator to see what I’m betting on this year.
But that isn’t why I set out to write this article. The point is that uranium converters, drillers, and other service and support businesses in the resource sector can be great investments. Don’t take my personal disinterest as evidence to the contrary.
It’s just that I’m at a stage in my life when I’m 100% focused on substantial wealth generation, not nurturing a nest egg.
That’s why I’m a speculator.
Tuesday, April 9, 12:42pm, EDT, 2019