Money doesn’t grow on trees, but for a time in the 17th century, thousands of investors thought it grew in gardens. The speculation in costly tulips reached such a pitch that for ten bulbs of the pretty Semper Augustus could buy you a house. Naturally, basing a boom on a product that’s bound to wilt led to the inevitable – a massive crash.
A craze about flowers seems foolish today, but the infamous ‘tulip fever’ was one of the most devastating boom-and-bust stories in history. Bubbles and busts in South Seas trading (1716-20), railways (1840s) and internet companies (1990s) show that investors haven’t really learned much about restraint since then.
For the shrewd investor, however, a crash can be as much an opportunity as a crisis.
The correction of a dramatically overpriced sector may feel like a storm trying to sink all ships. However, with it comes the potential for snapping up excellent investments while their prices are suppressed. The dot.com bust of the 1990s and early 2000s made stocks in some digital companies – notably Amazon and eBay – a tempting target. Investors who spotted their potential have seen increases of over 1000% in some of those stocks.
The results aren’t that strong yet for the uranium market, but that sector is beginning to pick up after a decade of falling prices – uranium losing around 80% of its value per pound over the period. Recession, companies changing their name to jump on the uranium bandwagon and the damage caused to Japan’s Fukushima nuclear plant by the 2011 tsunami all played their part.
The companies that weathered that particular storm are, in 2018, climbing again.
Cameco (NYSE: CCJ) is one of the world’s largest publicly trading uranium companies. Unlike some of those band-wagoners who have since turned to other commodities, Cameco has excellent uranium deposits. Its 2014 high of US$24.98 per share fell below US$8 in October of 2016, but the shares are on the rise again, sitting at around US$10-$12 in November 2018.
Cameco has a market cap of around US$4.5 billion. It’s consistently reported as knowing its key business extremely well and for maintaining a strong balance sheet. It’s made efforts to cut running costs and improve operating cash flows. The stock is not without its challenges, but developments in the market are promising.
Market decline or not, the world’s energy requirements mean that uranium is still a resource in demand. Nuclear reactors are still being built in countries faced with high energy demands and a need for fuel cleaner than coal and oil. Uranium production, which slumped during the decline, is gearing up again to meet fresh demand. How long it will take for that demand to kick in isn’t clear, but Cameco is well positioned to take advantage when it happens.
Uranium prices have risen around US$27 per pound in recent months, a trend that, if it continues, will bring benefits to operators like Cameco – and potentially for investors too.
If you would like to speak with a professional investment adviser about how you portfolio is positioned for the year ahead, contact United Global Capital today on 03 8657 7640 or email email@example.com for a no cost, no obligation consultation.
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Joel is the founder and CEO of UGC.
He is a licensed financial advisor with 15 years experience assisting clients grow, manage and protect their wealth.