The uranium price has surged in recent months due to new interest in nuclear power as a solution to the need for reliable, zero-carbon energy. I reckon uranium stocks could be winners if we see a long-term increase in demand for the nuclear fuel.
One exciting development is the creation of small modular reactors. These could be used to build smaller, cheaper nuclear power stations. That could speed up nuclear growth and boost demand for uranium.
I’ve been hunting for uranium shares to add to my portfolio. Here are three I’d consider buying today.
A top uranium producer
For a big uranium producer with an attractive dividend yield, I’d choose mining giant BHP (LSE: BHP). The company’s Olympic Dam mine in Australia is best known for its copper, but also contains a lot of uranium.
BHP produced nearly 2,300 tonnes of uranium concentrate in 2021. I estimate it’s one of the world’s top five producers of the nuclear fuel.
The main downside of BHP as a uranium stock is that much of the group’s profit comes from iron ore and other materials. This means the rising uranium price will only have a limited impact on earnings.
However, BHP shares currently offer a forecast dividend yield of more than 8% and look quite reasonably valued to me. This is a stock I’d be happy to own in my portfolio.
A nuclear fuel business
One uranium stock that should benefit directly from higher prices is US firm Cameco (NYSE: CCJ). This £8bn firm is listed on the New York Stock Exchange, but I’d be able to buy it through my UK share dealing account.
Cameco owns a number of uranium mines and also produces nuclear fuel for use in power stations. Interestingly, the company is keeping some of its mines idle. From what I can tell, management is playing a long game and betting on higher uranium prices in the future.
Cameco looks promising to me as a long-term play on nuclear power. My main concern is that this business has not been very profitable in recent years. Despite higher uranium prices last year, the company reported a $100m loss for 2021.
Broker forecasts suggest that by 2023, sales will rise to $2.1bn while profits will reach $180m. However, that still leaves the stock valued on 36 times forecast earnings, which seems a little pricey to me.
I reckon Cameco has potential as a long-term investment, but I’d prefer to wait for a better buying opportunity.
Pureplay uranium stocks
The world’s biggest uranium producer is Kazakhstan firm Kazatomprom. Although I can buy shares in this company on the London market, Kazatomprom is still 75%-owned by the Kazakh state wealth fund. For me, it’s just too risky.
Instead of buying Kazatomprom shares, I’d consider buying into Yellow Cake (LSE: YCA). This is a uranium trading and investment business with a long-term contract to buy uranium from Kazatomprom.
Yellow Cake’s profits depend on movements in the uranium price. But the company reported a profit of $172m for the six months to 30 September 2021, based on the increased value of its uranium assets.
I’d consider buying Yellow Cake shares to bet on long-term uranium price growth.