The Nasdaq ($NASX) remains near 52-week highs, up 31.77% year-to-date, which is its best annual first half in the last four decades. Meanwhile, the S&P 500 ($SPX) had its best monthly performance since October 2022, with the Dow ($DOWI) having its best since November.
However, concerns over a mild recession or even an economic meltdown persist around the world. There are a variety of reasons for this concern, including that the two-year to 10-year yield curve is now at its deepest inversion since 1981. And although Americans didn't see a rate hike in June, the Federal Reserve was still clear there could be one again in July and likely a another one toward the end of the year.
With that in mind, investors may be taking some protective measures in terms of their investment portfolios. One such area includes uranium stocks, with spot prices of uranium up about 15% in the last year. However, analysts now believe that uranium prices not only have room to grow even further this year, but could be a long-term buy that investors may want to consider for the next decade.
BofA bullish on uranium in 2023
Bank of America Securities (BAC) stated in research note this year that there are multiple reasons to be bullish on uranium in 2023. In fact, that investors should see a bull market as imminent. There were numerous reasons for this, so let's go over a few.
First off, there is the invasion of Ukraine by Russia that occurred last year. In the short term, sanctions on Russian uranium would limit the already limited supply of uranium. These shortages, according to BofA, should therefore increase the price of uranium even higher. The Bank estimates this could be an increase of between 20% and 40% in the near future. By 2025, the research note stated that it's likely uranium prices should hit $75 per pound.
But even without the sanctions on Russia, there is more reason to invest in uranium stocks, according to BofA. This includes the construction of 60 new reactors currently underway, with 100 more approved. These reactors continue to climb in demand, especially as there continues to be growing acceptance of the use of nuclear power to contribute to the shift to clean energy production. This comes after a decade of underinvestment, stemming from the disaster at the Fukushima nuclear power plant in 2011. Now, global demand is rising, especially as economies around the world realize they can create their own power at home, rather than depend on foreign oil and gas for energy production.
Ways for your portfolio to go nuclear
The research note goes further into how investors can get into uranium to power their portfolio. There were five areas noted by these analysts, with the company's metals analyst, Michael Widmer, believing that a “near-decade bear market has pushed global focus elsewhere, creating tight supply conditions." So with higher prices, investing in the raw mineral and companies that extract it, a well as the fuel produced, is the first ways investors can get in on the future of uranium.
Yet if you're hesitant here, I don't blame you. These kind of uranium stocks were the victims of retail investors back in 2021 and into 2022, leading to surges in share price only to see them drop once more. Therefore, another way to invest in future uranium growth is through component suppliers. These are the companies providing the means to build these new reactors, as well as fix the current ones. And with 437 available and 100 more due, that's a lot of parts.
There are also power suppliers out there that have uranium as part of their assets. Usually these companies have many different energy assets, but there has been an increase in companies adding nuclear power to their arsenal as countries begin the shift to decarbonization.
However, it can be difficult to choose just one or two uranium stocks in this case. Who knows which will be successful, and which will fall by the wayside? That's why the last recommendation is likely the best. That's to choose a strong exchange-traded fund (ETF) with a focus on uranium and nuclear power. These will be managed by experts who can choose nuclear stocks at any part of the supply chain.
Bottom line
Analysts across the board remain bullish on the future of nuclear. Supply far exceeded demand during the 2010s, but now there is a major shift. After years of shutting down production until the price of uranium increased, suppliers are now back online and looking to create a seemingly endless supply of the stuff. Just as with oil and gas, this is likely to continue for decades as companies aim to keep the cost of uranium high. With governments a major source of fueling the growth of this industry, it looks as if that price should remain high for at least the next few years.
As for its protection against a downturn, there is really one key item here. While other energy producers tend to be tied to the economy, with the price of Crude Oil (CLQ23) trading down 15% in the last year, uranium doesn't have such a link. Uranium power plants run no matter what's going on in the world, needing to meet the minimum level of electricity demand. There simply isn't a connection to consumers and their use of the product, as nuclear power will continue regardless. Therefore, if you're looking for long-term growth in the years to come, along with protection during a potential downturn, uranium stocks could indeed provide that protection.
My colleague, Tony Daltorio, is also bullish on uranium and believes that Cameco (CCJ) is a good uranium stock to scoop up now. And you can add these 4 other uranium stocks to your watchlist: BHP Group (BHP), Nexgen Energy (NXE), Uranium Energy (UEC), and Energy Fuels (UUUU).
On the date of publication, Amy Legate-Wolfe did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
