Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
Many times people ask me how I come up with my investment strategy.
Obviously, there is no one answer, but a common trick I use when developing any investment strategy is to look for areas where market sentiment still remains below peak optimism.
Following the tragic events of the Fukushima Daiichi nuclear power plant disaster in Japan, market sentiment for uranium dropped, naturally. As Japan halted all nuclear power plants, shareholders adjusted their investment strategy to get out of uranium mining stocks.
Now, the time when market sentiment is about to shift for the uranium industry, I believe, is close at hand.
The reality for energy use over the next decade is that it will grow massively around the world. Nations like China and India cannot keep up with industrial demand for energy, which is now causing huge amounts of pollution.
Chinese authorities are aware of the polluting side effects of conventional energy sources, such as coal, and are building several new nuclear power plants, which is a much cleaner energy source. Market sentiment will continue to shift in favor of uranium as more nations realize that nuclear power will continue to be with us for some time.
Adjusting your investment strategy before everyone jumps on board is important. Even Japan is now conducting analysis to re-open 14 nuclear power plants, as five utilities within that nation are requesting these energy sources be put back online.
If you’re going to look for a uranium miner to add to your portfolio, one well-established and smooth-running company to consider is Cameco Corporation (NYSE/CCJ, TSX/CCO).
In the latest quarter, Cameco posted revenue growth of over 102% from the same quarter in 2012. Net earnings increased by an even greater 167% year-over-year. (Source: Cameco Corporation web site, last accessed December 1, 2013.)
While market sentiment for the stock has begun to improve since October, as you can see in the multiyear chart above, the stock still remains far below previous levels.
After several years of lackluster performance, I believe that adjusting an investment strategy to at least incorporate some exposure to the uranium industry is beginning to look more appealing.
It can be difficult to go against market sentiment in one’s investment strategy. No one is talking about uranium right now; instead, everyone is focused on social media stocks and Bitcoin. However, the time to begin adjusting your investment strategy into a new sector is exactly when others are not excitedly talking about it and market sentiment remains relatively weak.
Market sentiment still remains very low for the commodity and stocks in the uranium energy sector. However, during turning points (which can last many years), you need to look past the short-term gyrations and look out over the long term to see what’s occurring at ground level.
Of course, when I’m talking about uranium and new nuclear power plants, this is a very long-term investment strategy. Market sentiment for these types of industries can take a long time to adjust.
With demand continuing to grow in nations such as China and India over the next decade, and with more regulations being applied against traditional power sources such as coal, I see uranium prices moving up over the next few years. Now is the time for smart investors to consider building an investment strategy in this energy source.
by Sasha Cekerevac, BA
