The Best Stock of 2017?

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The Best Stock of 2017?

 

The best stock of 2017? I think so.

But, looking at its track record, you’d want to run away from it - and that’s exactly what most investors have been doing.

Uranium has been in free fall for the past year, without having a single month of gain. In fact, uranium is trading at prices not seen since 2004.

I’ve been keeping my eye on this sector for several years now, waiting for a time to buy. I think that time is now.

As most of you know, I look for investments with minimum downside risk with lots of upside potential. I look for ways to make huge returns, but I am even more concerned with avoiding big losses.

This is why I buy real estate in areas that are selling for less than the cost of construction. I don’t know when prices will rebound, but I do know that there is not much room for any more price decline.

This is also why I avoid lots of high-flying tech stocks. Do I think the big tech companies have great products? For sure. I use their stuff every day and I believe they’ll be around for a long time.

Will those popular stocks go up in the future? Probably. They may even double over the next couple of years.

But, I also know that they are trading at huge multiples. They have a lot of upside potential AND downside risk.

I want huge upside risk with minimum (ideally zero) downside risk.

And that’s where I see uranium today.

Uranium is trading today for about $20 a pound, down from its 2007 high of nearly $140 a pound. At current prices, most mines have either shut down production or are literally spending more to mine the metal than they are selling it for.

uranium price

Source: IndexMundi

This is very similar to my comparison of real estate selling for less than the cost of construction.

Could prices stay low for a while? Of course. But, I know that eventually, things will turn around and we will make a profit.

Additionally, uranium demand is projected to increase by 50% by the year 2030, as nuclear reactors are coming online around the world. Currently there at least four under construction in the US, 3 in the UK, and many more in China.

And that’s not including the ‘old reactors’ that have been taken off line for retrofits and upgrades. Ever since the Fukushima disaster in 2011, nuclear power has carried a bad reputation. Many reactors worldwide were taken off line because of concerns that similar catastrophes could occur.

Instead, coal, solar, wind, and natural gas produced power was ramped up in an attempt to make up for the loss of nuclear power plants.

Of course there are many environmental concerns that apply here, but the reality is that nuclear power is the most efficient (and cost effective) form of energy that we humans have access to.

That is why many nations throughout the world are shifting back towards nuclear energy.

But, there is a problem. Because of the multi-year price slump, many uranium producers have either reduced or shut down production. In addition, there has been an oversupply of uranium because of the reduced use throughout the world. This has further crashed prices, causing many producers to cut back production even more.

This is a classic boom and bust cycle. When uranium is selling for high prices (like in 2007), miners ramp up production to create larger profits. Once the market gets oversupplied, prices decline, so miners have to shut down. This eventually causes a reduced supply in the market and will eventually drive prices back up.

We are approaching this moment now when production is decreasing but consumption is increasing. Eventually something has got to give, and the first thing will be an increase in uranium prices.

Miners will eventually ramp up production, but this will take years. You can’t just flip an “ON” switch at a mine.

I’ve dug into the books of a variety of different uranium miners to determine which ones are the best buy. I've identified at least five that will do great over the next boom cycle.

However, I have an even easier way for you to add exposure to the uranium market, and that’s through the Global X Uranium ETF ($URA).

$URA’s top holdings include Cameco, NexGen Energy, Uranium Participation, Denison Mines, and a variety of others. These companies are the exact companies I would have recommended if this ETF didn’t exist.

So, instead of making multiple purchases and chasing around different information about individual companies, we can buy $URA to spread our investment across a broad mix of companies.

$URA also gives a 2% dividend, which only sweetens the deal.

Uranium stocks have seen a huge bump this week, with a couple of companies seeing 50% gains this week alone. I wouldn’t be surprised to see a quick correction, but the larger story is still in play.

If you haven’t bought into uranium yet, don’t worry. You’ll have plenty of time. You can start to buy a position now and then increase over the next year.

We may see a bit more pain in the uranium sector, but I see a lot more upside potential than downside risk, making for an excellent investment.

By | 2017-11-21T19:08:22+00:00 January 12th, 2017|Economy, Investing, Top|40 Comments

40 Comments

  1. Larry January 12, 2017 at 7:24 pm - Reply

    Hello,

    This is a very nice insight, but it doesn't happen very often for me to buy $URA. What is the best way to buy it? Platforms I am using at the moment does not provide ability to buy Uranium.

    Thanks,
    Larry

    • Cody Shirk January 13, 2017 at 4:44 am - Reply

      I'm not exactly sure what you're asking, but any US based brokerage account should allow you to buy $URA. If you do not have a US based brokerage account, and you do not have access to the US market, then I will be releasing uranium recommendations in the future.

  2. Larry January 13, 2017 at 11:54 am - Reply

    No, sadly I live in France and I invested in US stock market only through platforms like getstocks.com or etoro.com

  3. Ahmad January 18, 2017 at 5:30 pm - Reply

    Cody,

    You're hands down my favourite Quora writer. I've read every answer you've written and I keep an eye out for new ones daily.

    I have 2 quick questions if you don't mind answering:

    1. If the market crashes would $URA crash heavily too?

    2. Are there any unethical practices associated with the production of Uranium? (I refuse to invest in any unlawful companies. I've spotted many undervalued stocks in the past which doubled, tripled and quadrupled in a span of 2 years, but made the decision to not invest.)

    Lastly, be my mentor. 🙂 I'm so hungry to learn from you.

    • Cody Shirk January 19, 2017 at 3:01 pm - Reply

      Thanks Ahmad.

      1. Perhaps. Doubtful.
      2. Unethical is subjective. It it's unlawful then it wouldn't be publicly traded (has to be a legal biz). Sounds like this is a personal thing you have to deal with on your own.

      I'll keep pumping out content!

  4. Pablo January 18, 2017 at 8:53 pm - Reply

    I really enjoyed this article, by the time you wrote it URA was on it's way up, however yesterday and today took a big dip down. There are some news about it. I read that production was going to increase considerably in 2017, would this mean that demand will be bigger also? Otherwise price could continue to go down.

    I see that the price has stayed over 10$ I believe would be good idea to put stops maybe at 9?

    Once you enter this product how long do you consider to hold it?

    • Cody Shirk January 19, 2017 at 3:01 pm - Reply

      Yes, there will be ups and downs, just as I stated in the article.
      I'll have more info going forward.

      • Pablo January 24, 2017 at 10:31 pm - Reply

        Been reading around and saw that there are contracts being signed for 40 a pound, that seems very promising ah? Would be awesome if it went down to the November levels 🙂

  5. Joe January 19, 2017 at 1:10 am - Reply

    Hey, where do I buy stocks? I've never made an investment before. Is there a certain website you recommend? (I am in Canada)

    • Cody Shirk January 19, 2017 at 3:02 pm - Reply

      You can open a brokerage account with many different companies - it comes down to what you like the best and feel comfortable with. You can look at Schwab, Fidelity, eTrade, Scottrade, Interactive Brokers, and many more.

  6. Blake January 19, 2017 at 9:08 pm - Reply

    Any thoughts on another long term play in the health care space re aging population demographics, e.g., the ETF OLD. Seems like a cant miss given the aging dynamics at play...

    • Cody Shirk January 20, 2017 at 1:35 pm - Reply

      Yeah, it might be a good long term play.
      However, it's a crowded trade. Many investors have the same idea as you, so that's priced into most of those stocks.

  7. James January 20, 2017 at 9:30 am - Reply

    Hi Cody,

    That was an insightful message! I love the way you present things and it's very clear. I'm new to the investing and have been keep an eye on the market. However, I have a couple of questions.
    1. As you stated in the comment section, it probably will have ups and downs. When will be a good time to buy in and when to sell? (in a 10 year chart, URA has been going down but steady in the last year or so, till recently from the time you posted the article and today)

    2. Besides, research the news of the company and daily news, what else to pay attention when buying stocks?

    • Cody Shirk January 20, 2017 at 1:37 pm - Reply

      1. Isn't that what everyone wants to know?!
      2. All of what you mentioned and any on-the-ground info I can get my hands on (requires relationships).

  8. Kavs January 22, 2017 at 9:16 am - Reply

    Cody, interesting direction. Thanks for your insights! Have some questions -
    1. Isn't coal and gas cheaper than nuclear?
    2. Is Donal Trump pro nuclear? I understand that he will support nuclear if it does not need any subsidies. Which I am led to believe it will, while coal and gas continue to be cheaper options.

    Look forward to your thoughts.

    • Cody Shirk January 22, 2017 at 4:58 pm - Reply

      1. Yes and no. The reason is because there are huge capital infrastructure costs that go into nuclear (vs traditional coal/gas), so it's expensive in the short term. However, with uranium prices so low, eventually it will be cheaper for nuclear. BUT, the big thing is pollution. Here is a great article from NASA about why nuclear is better than coal/gas http://climate.nasa.gov/news/903/coal-and-gas-are-far-more-harmful-than-nuclear-power/
      2. Only time will tell. I don't think anyone knows for sure what he's pro or anti. We'll have to see... But sometimes it doesn't matter what politicians say or think. It's about what the market says and what is the most economical.

  9. Marc Guell January 28, 2017 at 8:21 pm - Reply

    Hi Cody,

    Very interesting post. I am new to investing but I have a question about this post. I was wondering why uranium price ramped up around 2004. I did a 5 minutes research and found out that one of the causes could be the flooding of the Cigar Lake Mine, Saskatchewan, which has the largest undeveloped high-grade uranium ore deposits in the world (https://en.wikipedia.org/wiki/Uranium_bubble_of_2007) which caused some uncertainty about uranium short-term supply. Another cause could be the depletion of huge uranium stockpile from the 1980's (http://freakonomics.com/2008/03/24/why-did-the-price-of-uranium-skyrocket/). Maybe they are both refering to the same mine.

    The point is that this spike in uranium price seems that it was driven by fear of not enough supply due to the depletion/flooding of a huge stockpile, not by demand (which was probably very similar in 2000 than in 2007, and therefore not the reasing for the increase in uranium prices). So, will the increase in demand in the next 10 years alone be able to ramp up the uranium prices again without any other huge-stockpile-depletion related event? If so, why this time the demand will have such a big impact?

    I hope it was not a stupid question.

    Thank you in advance for your reply,

    Marc

    • Cody Shirk January 29, 2017 at 6:37 pm - Reply

      Hey Marc, great question.

      First... past results are not necessarily a guarantee for future returns. This is true in all areas of investing. So, with that in mind, we can't definitely say that uranium's last spike will happen again due to the same reasons.

      That said... right now uranium is selling for less than the cost of production. This is simply not sustainable. Either prices have to rebound OR production has to stop. Either way, prices will ultimately increase.

      Additionally, many countries are moving back to nuclear power AND there are many MANY new nuclear power plants coming on line in the next several years.

      If we look for investments with limited downside AND big upside, then this space is a perfect candidate.

      • Marc Guell January 29, 2017 at 6:46 pm - Reply

        Thanks for the answer Cody! great blog by the way

  10. the other Cody February 12, 2017 at 5:18 pm - Reply

    I would add one thing. The cost of uranium is a none factor for the cost of the utility. Gas and coal can have large spikes in price! And this can cause the cost of the gas/coal utility to spike right along with the commodity. The price of uranium is a non factor for the cost of nuclear power! Uranium is only 2-3 percent the cost of the utility! Nuclear power is inflation proof witch is essential for an government looking for stable priced power. You can't have price shocks in utility's it puts huge pressures on an economy! Sure gas and coal are cheap now but inflation will put huge pressures to diversify away from the fossil fuels!

  11. Marc Guell February 15, 2017 at 7:14 pm - Reply

    Two days ago in your newletter you predicted that there was going to be a fall in the price of $URA, and today in has started. You were right on time. My question is, how did you know it was going to be precisely today???

    Thanks Cody

    • Cody Shirk February 16, 2017 at 3:41 pm - Reply

      Hey Marc,

      There were a variety of data points that showed $URA was a bit over-bought (in the short term). I'll try to share this in the future - how you can find these small indicators. However, the bigger story for $URA is still in play, so these small bumps in the road won't mean anything in a couple years...

      Thanks!

      • Marc Guell February 17, 2017 at 1:08 pm - Reply

        Hey Cody,

        Thanks for your answer. Yes, I would be very interested in learning how to find and interprete these small indicators!

        Regards,

        Marc

  12. Leo February 22, 2017 at 12:03 pm - Reply

    Hey Cody,

    when I look at the $URA chart for the last 7 years, it seems to steadily go down. Since 2011, it has lost 80% of its value.

    Is that only because that fund's inception just happened to be at a time when uranium was over-priced? Or does the ETF decay effect play into this, which you once mentioned in one of your emails?

    I see the same thing with the $NUGT chart - it has its short-term ups and downs, but the long term trend seems to be continually downwards.

    If this was due to mathematical or financial reasons (the "decay" effect), then wouldn't that mean that the odds were stacked against the investor? Then it might be true that uranium increases in price, and gold increases in price, but any gains might be "eaten away" by the fund's decay effect. One might not be able to afford to just "sit and wait" until the prices start to rise again, because the decay effect eats up your money.

    Thanks & Best,
    Leo

    • Cody Shirk February 22, 2017 at 10:49 pm - Reply

      The decay effect is apparent in leveraged ETFs (like 3x silver, or 3x gold, 3x oil, etc.). $URA is not leveraged.

      • Leo February 23, 2017 at 1:12 am - Reply

        Gotcha. Thank you, Cody!

  13. Žan February 22, 2017 at 1:07 pm - Reply

    Hello Cody,

    Thank you for your blog and ideas. I have a question about this ETF URA.

    I am quite new to this (investing, trading etc). Would it be possible to also invest in ETF URA, by buying options ( I think in this case a PUT) of which timeline would be about 2,3 years? Would in not be more profitable this why, if it is even possible?

    Regards,
    Žan

    • Cody Shirk February 22, 2017 at 10:48 pm - Reply

      I don't think you want to buy a put... you'd want to buy a call. But, before you trade any options, you should first just do a little more research about stock investing in general. I've got lots of back articles you can check out.

  14. Ashok March 21, 2017 at 4:34 am - Reply

    Hi Cody!

    Just started reading your articles today. Really insightful and easy to understand as well. Thank you so much for writing these.

    I had a question about $URA though. I notice the expense ratio is quite high at 0.7%. Wouldn't it make sense to simply invest in the few good ones (Cameco, NexGen, Dennison for example)? Or do you think the exposure to multiple stocks is worth the higher cost?

    Thanks!

    • Cody Shirk March 22, 2017 at 4:51 pm - Reply

      $URA is the easiest way to gain exposure. Sure, you could go out and buy the individual positions, but you're going to have to keep a close eye on those. If you're an active trader (watching your positions closely on a daily basis), then you could do what you suggested. But if you don't have the time (or patience!), then $URA is an easier way to get exposure.

  15. Hadi March 27, 2017 at 5:14 pm - Reply

    Have you calculated the mining cost of uranium and translated it into units that would be comparable to the share price for the URA ETF? For example, by way of analogy, gold mining costs for the industry as a whole might be $950 per ounce, so if gold were to drop below $950, the downside risk of buying it at that price would be very low.

    Thank you.

    • Cody Shirk March 28, 2017 at 2:12 am - Reply

      URA does not own units of uranium. It owns shares of companies.

      I understand what you're getting at, but it'd be nearly impossible to translate uranium costs into units that could then be calculated into the share price of URA. This is because each company within URA has different mining costs and produces/mines uranium at different 'all-in' expenses.

  16. Jozef April 21, 2017 at 9:46 am - Reply

    Hi Cody,
    thanks for your great blog! I would like to ask about ETF on contango, because contango can lead to underperformance and even losses in ETF. What do you think about ETF URA? Thank you for your answer.Jozef

    • Cody Shirk April 25, 2017 at 3:13 pm - Reply

      Sure. It's definitely a consideration. However, URA holds shares of companies, not futures contracts. So, yes, the companies could be impacted depending on their contracts, which would ultimately affect the ETF.

  17. Lan May 4, 2017 at 1:09 pm - Reply

    Hello Cody, thanks for the great blog! What is the time horizon you foresee to hold on URA?

  18. Swaraj May 18, 2017 at 7:16 pm - Reply

    Vox did an interesting piece on Nuclear: https://www.youtube.com/watch?v=poPLSgbSO6k

  19. Jozef June 20, 2017 at 6:46 pm - Reply

    Hello Cody, what would you prefer ETF URA or ETF NLR? And why? Thanks!

  20. Andrew November 12, 2017 at 3:34 am - Reply

    Hi Cody, Came across your blog and this happened to be the first post that popped up—from Jan 17

    Are you still long URA? Not trying to be a wise guy, perhaps serendipity bumping into this.

    Good stuff

    Cheers

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