TPS Trade Alert – July 22, 2014
July 22, 2014
Recommendation:
Buy Uranerz Energy (AMEX: URZ) up to $1.40 per share.
Trade Rationale:
It’s been awhile since we recommended a uranium company for our portfolio. That should come as no surprise since the uranium market has basically been in the dumps since the Fukushima incident.
But that’s about to change…
There are a couple clear reasons why uranium companies are on the verge of a breakout. But before I get to those catalysts, I want to take one step back to talk about supply and demand in the uranium industry.
You see, there is a limited market for uranium (just 435 nuclear reactors worldwide). Basically, the vast majority of uranium is used for nuclear power plants. Until recently, the number of nuclear plants has held fairly steady across the planet. As such, any disruption in nuclear power generation (such as the crisis in Japan) meant a substantial decline in uranium demand.
For instance, when Japan shut down its nuclear power generation, it took a chunk out of the demand for uranium. This caused excess supply of uranium to build and the price of the mineral to drop.
Of course, lower prices (and excess supply) hurt most companies in the uranium industry. However, demand for uranium is going to get a significant boost in the near future.
First off, Japan has 18 reactors awaiting restarts. Once the government approves the plans, there’s going to be a huge bump in demand from Japan.
And then there’s China.
The Chinese government has ambitious plans for the country’s nuclear program. In fact, China is undertaking the world’s largest expansion of civilian nuclear power.
There are a whopping 29 reactors under construction with 20 or more expected to be built in the next six years. Those reactors are going to require a hefty amount of uranium when they come online.
That’s where Uranerz Energy (AMEX: URZ) comes in…
URZ is an exploration stage company which develops uranium resources in the US. The company’s primary projects are in the Power River Basin areas of Wyoming.
Uranerz controls a large, strategic land position in the Power River Basin, which is the largest producing uranium mine in the US. As such, the company will continue to expand its drilling operations in the region.
In the meantime, the company has a processing agreement with Cameco (CCJ), the largest public uranium company in the world. And, it has long-term agreement to provide uranium to two major US utilities, including Exelon (EXC).
But here’s why I really like URZ…
The company just announced it will be closing a new $12 million round of equity financing. The new shares will be offered later this week for $1.25 per share. The money will be used for the continued development and operations of mining facilities.
Here’s the thing…
Based on the price of uranium and expected demand, URZ stock was recently trading for around $1.50. That’s already a steep discount if you take into account the expected increase in uranium demand from Japan and China. But then, the price only dropped even farther, to its current level ($1.21), due to the new stock offering.
Based on fundamentals, the price of the stock should be significantly higher. Once the new shares are offered, the share price will inevitably begin climbing again.
Keep in mind, before the Fukushima accident, the stock was trading at over $4 per share. There’s no reason the share price won’t return to those levels now that the uranium market is improving.
Let’s grab our shares of URZ at the current, rock-bottom price.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Uranerz Energy |
| Ticker: | URZ |
| Recent Price: | $1.21 |
| Market Cap: | $104 million |
| Avg. Daily Volume: | 353,898 shares |
Chart:
Category: TPS Trade Alert
