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File photo of Cameco's Cigar Lake uranium mine. Weak global PMI reportss have clear negative implications for export-dependent Canadian industry sectors, notably mining and energy. (David Stobbe/Reuters)
File photo of Cameco's Cigar Lake uranium mine. Weak global PMI reportss have clear negative implications for export-dependent Canadian industry sectors, notably mining and energy. (David Stobbe/Reuters)

Japan election ignites rally, insider buying, in uranium stocks Add to ...

Inside the Market's roundup of some of today's key analyst actions

The landslide victory by the pro-nuclear Liberal Democratic Party in Japan this weekend has fuelled a rally in uranium stocks, which just a month ago were striking multi-year lows.

The Global X Uranium exchange traded fund, which tracks a number of global companies operating in the sector, was up 2.7 per cent at midday, adding to its 5 per cent gain on Monday. It’s now up about 15 per cent since hitting all-time lows in mid-November.

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Canada’s Cameco Corp. is up 0.6 per cent at midday, bringing its gains over the past month to about 18 per cent. On Monday, there was an unusually large insider purchase of the stock, with Cameco director Ian Bruce buying 25,000 shares in the public market at a reported price of $19.66, according to consultancy INK Research. That’s nearly half a million dollars in Cameco stock purchased by Mr. Bruce, who was formerly a co-chairman of the board of independent investment dealer Peters & Co.

“The filing was even more impressive that it took place after some strong gains in the share price over the past month,” noted Ted Dixon, CEO of INK Research. “We don’t see single filings of that size come across too often in Canada.”

The win by the Liberal Democratic Party, said Dundee Securities analyst David Talbot, “may be a turning point for the nuclear sector and the catalyst many investors have waited for.

“We expect that this news could accelerate the likelihood that at least part of the Japanese nuclear fleet gets back online, perhaps even earlier than mid-2013.”

The LDP ran on a platform that included a plan to partially reverse the anti-nuclear energy policy implemented by the Democratic Party of Japan after the Fukushima disaster in March 2011.

Public opinion in Japan is still divided on the safety of nuclear power, and only two of 51 reactors are currently operating in the country. But the Japanese economy faces some “very real and negative effects” with so few of the plants in service, notes Robert Gill, portfolio manager with Morrison Williams Investment Management.

“The cost of higher energy imports is increasing the cost of living; Japan’s balance of payments is weakening; and the government’s ability to stimulate economic activity is being hampered. Renewable energy and imports of oil/liquefied natural gas are too expensive for the economy to maintain,” Mr. Gill said in a note. “Subsequently, the leader of the LDP views nuclear as an important part of the Japan’s long-term energy consumption.”

Many uranium stocks started rising ahead of this past weekend in anticipation of the LDP win. The spot price of uranium has also been on an upward trajectory in recent days, climbing $1.50 over the course of last week to $45 (U.S.) per pound, according to uranium consultant TradeTech.

Uranium also received some potentially bullish news this week after the Australian Environment Minister delayed approval for the Wiluna uranium mine in Western Australia. A decision is now expected in March 2013. Australia has the world’s largest known uranium reserves and the action may further delay new production hitting the market. “It is yet another addition to a growing list of uranium projects that have been delayed,” noted Cantor Fitzgerald analyst Rob Chang.

Upside: The average price target on the Street for Cameco is $26.94, according to Bloomberg data. There are 10 buy recommendations, seven holds and no sells.

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UBS Securities Canada upgraded Athabasca Oil Corp. to “buy” from “neutral,” applauding the company’s decision to conservatively allocate only $236-million in capital for its light oil business in 2013 as it focuses on heavy oil spending. “While we remain concerned ATH is spreading itself thin, we believe the shares are now attractively valued,” said analyst Chad Friess, adding that its “upside is hard to ignore.”

Upside: Mr. Friess trimmed his price target by $1 to $13.

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Sun Life Financial Inc.’s sale of its U.S. business to Guggenheim Partners this week significantly reduces its sensitivity to interest rates and equity markets, commented UBS Securities Canada analyst Peter Rozenberg. The raised capital could be used to make acquisitions or further reduce debt, but he notes the sale will be “fairly” dilutive to earnings per share.

Upside: Mr. Rozenberg raised his price target by $2 to $26 and maintained a “neutral” rating.

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Kirkland Lake Gold Inc. slashed its fiscal 2013 production guidance roughly in half, to 90,000 to 100,000 ounces. The firm’s latest earnings report “served the purpose of confirming some of the key challenges” of the company’s operations and expansion efforts in Ontario, commented CIBC World Markets analyst Cosmos Chiu. “Nonetheless, guidance cuts were still more than we had expected.”

Downside: Mr. Chiu cut his price target to $9 from $15 and reiterated a “sector perform” rating.

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Stonecap Securities downgraded Revett Minerals Inc. after the company announced that it has temporarily suspended operations at its Troy mine in Montana amid an increase in hazardous rock falls. “Revett believes that it will take up to two weeks to return to full operations, but we believe there is a possibility that the delay could be longer and result in higher costs going forward,” said analyst Christos Doulis.

Downside: Stonecap cut its target to $3.50 from $5.60.

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For more analyst actions, breaking investing news and analysis, follow Darcy Keith on Twitter at @eyeonequities

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