There's an old adage that states you should sell shovels when people dig for gold. It means you can be a crucial player in the supply chain of a rapidly expanding market and benefit from consistent growth in revenue and earnings.
For example, uranium is set to be a key commodity in the worldwide transition towards clean energy solutions. Several countries are moving away from fossil fuels, and nuclear energy powered by uranium is one alternative to generate power.
This week, uranium prices extended last month's breakout to multi-year highs, with December-dated futures (UXZ23) topping the $72/pound mark. Uranium related stocks hit new highs of their own in late September, despite widespread weakness in broader markets - but in more recent sessions, these stocks have been pulling back from recent highs.
With price forecasts still bullish for the underlying commodity, the sudden pullback in uranium exploration and mining stocks could present an opportunity for investors to buy the dip. Here's a look at three top picks to watch this October.
Analysts Call Uranium Energy Stock a Strong Buy
Valued at a market cap of $1.88 billion, Uranium Energy (UEC) explores, extracts, and processes uranium and titanium concentrates in the U.S., Canada, and Paraguay.
UEC is up 26% in 2023, and has more than tripled in the last five years. Just last week, the stock tagged a new 52-week high of $5.77.
In fiscal 2023 (ended in July), Uranium Energy reported revenue of $164 million after it sold 3.15 million pounds of uranium. It recorded gross profits of $49.6 million with an adjusted loss of $0.02 per share.
It completed $340 million in acquisitions, allowing Uranium Energy to create the largest diversified North American-focused portfolio. UEC is among the largest resource and landholders in Canada’s Athabasca Basin following the acquisitions of UEX Corp and a portfolio of exploration projects from Rio Tinto.
Unlike several other mining stocks, UEC’s balance sheet is debt-free, and it ended 2023 with $192.3 million in cash and cash equivalents. Analysts expect the company to turn profitable in fiscal 2025, with adjusted earnings of $0.04 per share.
Each of the four analysts covering UEC has a “strong buy” recommendation. The average target price for UEC is $6.62, which is 39% above its current target price.
An Opportunity to Buy the Dip in Denison Mines Stock
Denison Mines (DNN) is a Canada-based exploration and development company. Its flagship project is the 95% interest it owns in the Wheeler River uranium project, which covers an area of 300,000 hectares located in the Athabasca Basin.
Valued at $1.32 billion by market cap, Denison Mines stock is up 32.6% year-to-date and 127% since October 2018. The shares are fresh off last week's 52-week high of $1.79.
In Q2 of 2023, Denison Mines completed a successful feasibility study that evaluated the use of in-situ-recovery (ISR) mining for high-grade Phoenix uranium deposits. Denison emphasized, “Notably, the economics of Phoenix as an ISR mining operation remain exceptionally robust, despite industry-wide cost inflation, while most contemporary uranium development projects have not yet been tested against current cost inflation.”
Denison Mines is well capitalized, and ended Q2 with $235 million in working capital and other investments. It expects the Phoenix project to deliver an internal rate of return of 105.9%, which will be a key driver for the company once it becomes operational.
Out of the five analysts covering DNN, two have a “strong buy” recommendation, and three recommend “moderate buy”. The average price target estimate for DNN is $2.08, which is 36.8% above current levels.
Cameco is a Cathie Wood Uranium Pick
The final uranium stock on my list is Cameco (CCJ), a mining giant valued at $16.08 billion by market cap. Cameco is among the largest uranium producers globally, with assets in Canada, the U.S., and Kazakhstan. It has an annual production capacity of over 30 million pounds and is forecast to report revenue of $1.94 billion in 2023, an increase of 40.6% year over year.
In recent months, countries such as the U.S. and Canada have expressed interest in building nuclear power plants, driving shares of Cameco higher. According to a Reuters report, Canada will build three small modular reactors, or SMR, in Ontario, with operations estimated to begin before 2036. There is already another SMR under development in Ontario, which should be completed by 2028.
Cameco stock is up 272% in the past three years, and has surged 57.5% year-to-date - peaking last week at a new annual high of $42.16 to wrap up September.
Due to the renewed interest in nuclear energy, Cathie Wood’s Ark Autonomous Technology & Robotics ETF (ARKQ) added a total of 348,320 shares of Cameco to its portfolio.
Out of the nine analysts covering CCJ, six recommend “strong buy,” two recommend “moderate buy,” and one recommends “hold.” The average price target for Cameco stock is $42, which is 17% higher than current prices.
