With bear claws firmly piercing the broader stock market, we’re looking at commodity investments that could inject alpha into our portfolios. Right now, we’re eyeing uranium reserves. Spoiler alert: they’re dangerously low, which has significant implications for investors.

Here’s what low uranium inventories mean for energy security and costs, as well as two uranium stock picks:

  • US nuclear utilities’ inventory is only 16 months long, while the EU has just two years’ supply.
  • COVID and Russia’s military conflict jeopardized supply chain security, causing costs to rise.
  • Companies in geopolitically stable locations have an advantage while the industry rushes to meet demand.

As we said, uranium supplies are perilously low. US nuclear power plants have just 16 months’ worth of uranium requirements. That’s well below the 2+ years recommended minimum. To us, that means the US utilities might not be able to handle a supply disruption independently.

While the EU supplies could get them through 2 years, many individual utilities fall far short of that ESA-mandated standard.

So why is this happening?

Eating into inventory

Inventory is a secondary uranium supply and, in the past, had filled the gap in uranium demand when production wasn’t enough.

Recently, uranium companies haven’t been building new mines after a decade of negative public opinion and low market prices. Furthermore, investment dollars haven’t funded uranium exploration.

The result? Minimal production.

Essentially, the industry has existed on inventories, which have been severely drawn down. This situation leads us to our interest in uranium prices. Why? Because as the old saying goes – the cure for a low commodity price is a low commodity price. That’s because, without new mines, the industry has no new resource discoveries. As a result, uranium prices are increasing.

Spot price: the magic number

The worldwide spread of COVID, and Russia’s invasion of Ukraine, added complexity to the uranium pricing mix, driving the spot price to an 11-year high of $60 per pound.

Indeed, when COVID spread two years ago, the pandemic’s effects hit producing countries like Canada and Kazakhstan. As a result, uranium mine employees could not work in those countries, causing rolling shutdowns.

Then, at the beginning of 2022, civil unrest erupted in Kazakhstan. Discontent with worsening inequalities and leadership led to mass arrests. While it only lasted a few weeks, the turmoil emphasized fears of political stability, supply chain insecurity, and their impacts on uranium production.

Adding to the issue, Russia invaded Ukraine in late February. That invasion led to economic sanctions on Russia, impacting the global energy markets. Furthermore, because Kazakhstan produces around 40% of the world’s uranium and ships it out of Russian ports, sanctions on Russia would further impact the uranium supply.

This growing supply uncertainty is putting upward pressure on uranium prices. The spot price was US$51.40/pound at the time of writing, coming off a high of US$60 this spring.

The result? Uranium players worldwide are getting back to work.

Uranium stocks: geopolitical stability is key

In retaliation for Russia’s aggression in Ukraine, Western nations will soon prohibit nuclear energy produced using Russian uranium. While they’ve imposed sanctions on oil and gas, the West has yet to sanction Russian uranium. However, that is undoubtedly on the way.

Bloomberg reported that the Biden administration is seeking Congressional support for a $4.3 billion bill to buy domestically produced enriched uranium. They aim to stop the country’s reliance on Russian imports of nuclear fuel.

Likewise, in Australia, a prominent politician reignited the nuclear energy debate, saying he’s “not afraid to have a discussion on nuclear.”

Geopolitical instability and worries around supply chain security are advantageous for projects in relatively stable countries. Indeed, a Russian ban would make US, Canadian, and Aussie uranium companies attractive, as Russian uranium still accounts for roughly 50% of U.S. consumption.

We’ve rounded up a few names that could see substantial upside from these circumstances. Companies likely to benefit from this situation are Uranium Energy Corp (NYSE:UEC), enCore Energy (OTC:E.U.), Puranium Energy (CNQ:UX), Fission Uranium Corp. (TSX:FCU), and Boss Energy (ASX:BOE).

Let’s look at a couple of the stocks we like from this list.

Puranium Energy (CNQ:UX)

We like the outlook for uranium stock Puranium, a Canadian exploration company operating in uranium-rich Namibia. The company recently acquired seven prospecting licenses with properties surrounding world-class uranium mines and deposits in that country.

We think great exploration companies will be of even greater value in a world with a depleted post-cold-war uranium stockpile.

Puranium’s land surrounds some of the best uranium mines and deposits, picked up at a great price. We also like that Puranium has a solid financial position without debt, allowing easy access to future equity offerings.

As a uranium company in a stable country, they’re set to lead in nuclear power, make an impact in the clean energy sector, and deliver value to stakeholders.

And, in our opinion, the stock is cheap for the probable value of its mines.

Uranium Energy (NYSE:UEC)

Uranium Energy Corp. is a mining and exploration firm based in the U.S., operating in Texas, Wyoming, New Mexico, Colorado, Arizona, Paraguay, and Canada. As a result of this diversification, it also has growth potential.

We like that the company hasn’t used uranium price hedging. Therefore, it has no uranium contracts at preset prices. Compared with other uranium miners globally, Uranium Energy is highly leveraged to uranium’s price. And right now, that’s a good thing.

So is now the time to invest in uranium? Time will tell, but we think it’s a commodity to watch with the current supply situation. Just make sure you’re investing in companies in geopolitically favorable areas.

Beyond making a few bucks, uranium stocks could also be an investment in the right direction for the planet. The world will always need a reliable energy source. But, if we invest in uranium mines now, we can create a planet that will be very different for future generations.

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