Uranium Mining Stocks Grossly Under Perform Oil Stocks
Commodities / Uranium Aug 08, 2007 - 09:22 AM GMTBy: Greg_Silberman
Uranium mining stocks once the darling of the resources sector have come off the boil. Is this a trend change or a pullback in a very overheated market?
Until recently the market has been going gaga over uranium mining stocks. Some say it was classic bubble syndrome. New floats were coming to market at huge premiums and non-resource companies were rebranding themselves as Uranium explorers.
Fast forward to the present and we find the Uranium sector has gone through a significant correction. Is this a change in trend or a healthy pullback?
What's surprising to us is that the correction in Uranium stocks has been more closely aligned with the correction in Gold Stocks than with Oil Stocks (which have continued to march higher). We think this is due to the fact that Gold Miners have significant Uranium deposits and that the fundamentals behind the Uranium Bull market are not fully understood.
If this is the dawn of a new era in energy it's not apparent from the miserable underperformance of Uranium Mining stocks versus Oil Stocks.
Chart 1 - large cap Uranium mining company Cameco versus Exxon Mobil (blue)
It seems not all forms of energy are born equal!
Admittedly Uranium Stocks have seen a BONANZA over the last 2 – 3 years which has caused them to become more speculative than their Oil counterparts. It stands to reason therefore that a correction in Uranium stocks would be deeper and more painful than a correction in the rest of the energy patch.
But now that the speculative frenzy has dampened and we can finally pick up Uranium stocks at reasonable prices, we need to ask ourselves, what's changed?
The answer: not much.
The long-term arguments against fossil fuels become more compelling by the day:
• Abnormal weather patterns are becoming the norm (?) take the recent floods in the UK as one of many examples. Global warming is a reality and burning carbon fuels is the cause;
• Geopolitics are showing no signs of improvement. The next energy source must be located outside of the middle east mayhem;
• Growth and industrialization in China, India and the rest of the world continues at a fierce pace. Current crude oil prices are reflecting this dynamic and continue to surge whilst stock markets falter.
Nuclear is probably the only viable alternative to help alleviate the coming energy crisis both in time and in magnitude.
For the smart investor with a time horizon longer than a year, this is a great time to pick up quality uranium mining stocks at reasonable prices. We have been active buyers ourselves and have been recommending the same to our subscribers.
More commentary and stock picks follow for subscribers…
By Greg Silberman CFA, CA(SA)
Profession: Portfolio Manager and Research Analyst
Company: Ritterband Investment Management LLC
e-Mail: greg@goldandoilstocks.com
Website: blog.goldandoilstocks.com
I am an investor and newsletter writer specializing in Junior Mining and Energy Stocks.
This article is intended solely for information purposes. The opinions are those of the author only. Please conduct further research and consult your financial advisor before making any investment/trading decision. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.
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