Can things get any worse for the beaten-down, out-of-favour, nuclear disaster-inflicted uranium sector?
Not likely, concludes Versant Partners analyst Rob Chang.
He suggests we’ve now reached the “point of maximum pessimism” for uranium.
In other words, the capitulation stage is over for stocks in the sector and value hunters with a longer-term view should do well.
This year saw the most powerful earthquake ever to hit Japan and a subsequent tsunami triggered the largest nuclear accident since Chernobyl in 1986. Germany announced it intends to exit nuclear power generation by 2020 and Italy and Switzerland cancelled plans to build new reactors.
But Mr. Chang points out that outside of those three countries there do not appear to be any others seriously considering a reversal of their nuclear power plans.
“In fact, reports have been positive. The China Nuclear Energy Association announced in mid-August that it completed a nationwide safety inspection of nuclear plants on August 5th – a month ahead of schedule. This has led to speculation that the Chinese intend to resume nuclear plant approvals, which were suspended in the wake of the Japanese disaster,” he said.
Meanwhile, the fundamentals for the nuclear and the uranium market remain largely unchanged - with demand poised to outstrip supply in coming years. Despite all the negative headlines, there are now a total of 558 reactors currently in the construction, planned or proposed stage. That’s actually up from 540 at the start of the year, he notes.
“Outside of global economic weakness, there does not appear to be a foreseeable negative catalyst for yellowcake,” he maintains.
Mr. Chang believes there are several stocks that offer good value right now. Cameco Corp., he notes, is the bellwether of the sector and will be the first choice for many large institutional portfolios looking for exposure to uranium. Its stock has declined 40 per cent since the Japanese nuclear crisis.
Uranium One Inc. , down more than 50 per cent, has the highest exposure to spot uranium prices and has the lowest cost of production.
He also recommends Uranium Participation Corp. to those investors looking for direct exposure to physical uranium while avoiding company-specific risks. It’s an investment holding company with almost all its assets invested in either uranium oxide concentrate or in uranium hexafluoride.
Pretium Resources Inc. is consistently hitting mineralization as it drills for more gold at its Brucejack project in British Columbia, noted CIBC World Markets Inc. analyst Brian Quast. He expects the company to announce good news when it updates its Brucejack resource estimates in the fourth quarter, with up to 2 million ounces in gold likely being added.
Upside: Mr. Quast raised his price target by $3 to $15 and maintained a “sector performer” rating.
CIBC World Markets Inc. and UBS have both upgraded CAE Inc. to buy recommendations, as the company’s shares have pulled back nearly 20 per cent over the last three months. CAE also announced this week the acquisition of Medical Education Technologies Inc., one of the leading growth companies in the medical simulation industry. CIBC analyst Michael Willemse believes the move will allow CAE’s New Core Markets division to reach profitability.
Upside: CIBC trimmed its price target by 50 cents to $13.50, while UBS maintained a $14 target.
California has made changes to its milk pricing formula that will result in higher costs for Saputo Inc. , noted CIBC World Markets Inc. analyst Mark Petrie. Meanwhile, a drop in the U.S. block cheese price has come earlier than expected, prompting Mr. Petrie to reduce his fiscal second-quarter forecasts.
Downside: Mr. Petrie, who rates Saputo “sector performer,” trimmed his price target by $2 to $46.
RBC Dominion Securities Inc. has raised its gold and silver price forecasts by about 30 per cent over the next four years and hiked its long-term gold price assumption by $200 to $1,200 (U.S.) an ounce. As a result, analyst Stephen D. Walker upgraded Newmont Mining Corp. to “sector perform” from “underperform,” noting the company “offers investors excellent leverage to higher gold prices.”
Upside: Mr. Walker raised his price target by $20 to $87.