Every issue of Cabot Wealth Advisory has a link near the bottom that allows you to give feedback on that issue … or on whatever’s on your mind, and I enjoy reading your submissions. Perusing the comments recently, I noted substantial interest in uranium and nuclear power, so that’s my main topic for today.
But I also note that one respondent simply asked for “THE TRUTH.”
So I’ll start by giving my 2 cents on that issue.
Some truths are easy.
The earth revolves around the sun every 365 1/4 days and completes one rotation every 23 hours, 56 minutes.
Uranium is the heaviest of the naturally occurring elements on earth.
The three interior angles of a triangle total 180 degrees.
But some truths are debatable:
Do the benefits that immigrants bring to America outweigh the costs?
Is NASA a valuable research institution that pays dividends down the road, or a boondoggle for politically connected scientists and engineers?
And finally, is global warming real, or a creation of anti-business liberals and media?
The fact is, you can find very smart people with strong convictions on both sides of these questions, each believing their position is true. (You can find some very stupid people with the same convictions as well.) So where’s the truth?
Searching for the Truth
Early in my college days, I was a philosophy major for a short while, and I’ve maintained an interest in the subject ever since. One of my core beliefs, which has become stronger in recent years as a result of my exposure to a wide variety of people, is this: an individual’s perspective tends to be critical.
So when someone asks for the truth, I first ask myself where that person is coming from.
I ask what they do for a living.
Business executives tend to revere free markets, while workers in the public sector tend to distrust business.
I ask what they read.
New York Times readers run liberal, while Wall Street Journal readers run conservative.
And I ask what they watch on TV.
Folks who watch Fox tend to be conservative, while folks who watch CNN tend to be liberal.
So what’s my point? That there’s nothing wrong with any of the above, but that people tend to seek out and absorb information that reinforces their pre-existing beliefs because it’s comfortable. In doing so, they avoid exposure to information and opinion that challenges those beliefs and thus they are unlikely to change those beliefs. (Many, of course, rebut with, “I’m right, so why should I change?”)
When it comes to those hard questions above, however, the truth is usually somewhere in between, in the gray area between the left and the right. And if you spend most of your time absorbing the messages from one side of the aisle, you’ll have a more difficult time discovering the real truth.
George Santayana commented, “There is wisdom in turning as often as possible from the familiar to the unfamiliar: it keeps the mind nimble, it kills prejudice, and it fosters humor.”
Albert Einstein noted, “Few people are capable of expressing with equanimity opinions which differ from that of their social environment.”
The solution, of course, is to expand your social environment. It may not be comfortable; but by doing so, you’ll increase your chances of discovering the truth … and you’ll grow as a result.
Me, I don’t watch TV news. I read a lot online, and I read five newspapers a day, from the New York Times on the left to Investor’s Business Daily on the right. And while I can’t claim to have discovered THE TRUTH, I can say that I am enjoying the hunt!
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As for Uranium, your requests read as follows:
The first: “I’d like to know how certain sectors may be adversely affected depending on who gets elected President, and in particular about good companies into uranium.”
The second: “Nuclear power. As Mr. Bush said, we need to add to our nuclear power. I hold USU, the only company in the U.S. that makes uranium. The government will always bail them out of trouble if need be. I believe it’s a win-win, cheap & clean. And it can be safe–there are quite a few plants started now around the world. Even third world countries will build in a few years. Great short term and long. Please comment “
The third: “You are missing the GREEN future by avoiding URANIUM or NUCLEAR companies.”
Well, I don’t believe we’re guilty of missing the green revolution. Our readers have made great profits in solar power stocks, and now we have a whole newsletter devoted to Green investing.
But we haven’t recommended any uranium stocks in quite a while, and here’s why. They’ve been a lousy place to make money! An analysis of seven companies–discussed here roughly in the order of worst to best–tells the story.
Fronteer Development (Amex: FRG) is a Canadian company in the uranium exploration/development business. It has no revenues. Over the past year, its stock has declined from 15 to 4.
UEX Corporation (Pink Sheets: UEXCF.PK) has the exact same story, but trades on the pink sheets, which increases risk. The stock has dropped from 10 late last year to 3.
U.S. Energy (NSDQ: USEG) is a Wyoming-based developer/producer of gold, uranium, molybdenum and vanadium. Revenues in the past 12 months were just $1.2 million. Trading volume averages just 87,000 shares per day. In the past three years, the stock has fallen from 8 to under 3.
Uranerz Energy (Amex: URZ) is a Canadian exploration and development company working in Saskatchewan, Wyoming and Mongolia. It has no revenues, it trades an average of just 107,000 shares per day and in the past year the stock has fallen from 7 to 2.
In these first four companies, I find nothing of interest. That doesn’t mean you can’t make money at them; it just means that in my opinion, attempting to do so is more like spinning the roulette wheel in Las Vegas than investing.
USEC (NYSE: USU) is based in Maryland and, as my correspondent noted, is the only U.S. company in the uranium-enrichment business. It supplies more than half the U.S. market and more than a quarter of the world market. When I researched it last, I was interested to find that a major source of raw material was decommissioned Russian nuclear warheads. Since 2004, revenues have grown in every year; in 2007, they exceeded $1.9 billion. But … in the first quarter of 2008, revenues dropped 26% from the year before to $343 million, and earnings came in at $.04 per share, when analysts were expecting $.08. Ouch.
The “explanation” is that revenues are dependent on customer refueling schedules. Unfortunately, this doesn’t explain why analysts were blindsided. In the past year, the stock has fallen from 25 to nearly 3 before rebounding in the past two months to 6. There’s a chance that the two-month bounce might mark the start of a new uptrend.
Uranium Resources (NSDQ: URRE) is a Texas-based explorer/producer of uranium properties that expects to expand its operations into New Mexico as well in the years ahead. Over the past four years, revenues have grown rapidly; last year, revenues topped $31 million. In the fourth quarter, sales volume was up 1.8% while the average realized price of uranium was up 23%, resulting in total revenues of $5.7 million, up 25% from the year before. In the past year, URRE has dropped from 15 to under 5, but the stock’s long-term uptrend is still intact, so this could be a good buying area.
Cameco (NYSE: CCJ) is last and perhaps best. It’s a Canadian company engaged in exploring, mining and refining, so it’s vertically integrated. It’s grown revenues every year since 2000, which is a sign of good management. Roughly one-fourth of revenues come from gold. In the first quarter, revenues grew 45% from the year before to $593 million. Of the uranium component, sales volumes were up 17% while average realized prices were up 55%. And the stock looks great … at least when compared to the other stocks here. In the past year, it’s declined from 56 to a low of 31, and then rebounded to a high of 40. The long-term chart reveals a strong uptrend in 2004 and 2005 (in fact, it was featured in Cabot Top Ten Report several times back then) and then a long base over the past two years that should eventually lead to a resumption of the uptrend.
The bottom line is that most of these stocks stink today. Yes, there are prospects for renewed uptrends in a few of them, and if you were determined to make money in uranium, you could find reasons for optimism. But I’d rather buy strong stocks breaking out to new highs than any of these, which have fallen so low, because if they do try to rally, they’ll encounter selling pressure from investors who bought higher and are happy to get out even.
Finally, we come to the question of why these stocks are so weak. I think a main factor is that growth in the industry is so slow. As we all know, there are no new nuclear power plants being built in the U.S. today, and there are none planned to be built. Globally, there are about 30 under construction, equal to 6% of existing capacity, and more than 70 planned, representing about 22% of present capacity.
In the meantime, smaller oil and gas companies have proven excellent investments in recent years and there are solar power companies that are growing revenues and earnings at triple-digit rates, with stocks hitting new highs. To me–and to many other investors–the choice is clear.
Editor’s Note: Cabot’s time-tested investing system evaluates stock on both fundamental and technical factors, so you don’t get stuck losing money in uranium when solar power is making other investors rich. You’ll find our best advice on investing in the alternative energy universe from Brendan Coffey, editor of Cabot Green Investor, which tells you what to buy, when to buy it, and when to sell it. Since it was launched at the start of 2008, subscribers have enjoyed profits in Canadian Solar (CSIQ), Gushan Environmental (GU) (a Chinese biodiesel company), and American Superconductor (AMSC) (wind energy) … and that’s just the beginning. To start your own no-risk trial subscription, simply click the link below.
Yours in pursuit of wisdom and wealth,
Cabot Wealth Advisory