As a market strategist I have no choice but to track the hottest sectors of the market, but I also keep a close watch on the most unloved areas. Like Wayne Gretzky, I like to skate to where the puck will be, not where it is; and today I’m focusing on uranium.
Remember nuclear energy? Many don’t, so let’s review. Smashing together atoms of uranium or uranium derivatives causes a chain reaction that unleashes enough energy to destroy the world or, wait for it, power the world.
Speaking from Firsthand Experience
My expertise in this area is personal. As a Naval aviator I spent the better part of a decade sleeping on top of two nuclear reactors on several of our nation’s finest aircraft carriers. Those
two reactors could send a 90,000-ton vessel around the world countless times at a top speed that remains confidential. So, with global concern over carbon emissions and climate change, why isn’t nuclear energy a priority?
Opponents of the energy source have long cited safety as the primary issue — and they have some valid examples to point, but it can be argued that those examples were the result of
human error. Humans decided to build Japan’s Fukushima nuclear power plant near a fault line and in a tsunami zone. Bad idea. Chernobyl was a good design with almost enough fail-safes to make it meltdown-proof. But Communist Party officials, afraid to report anything but success up the chain, made decisions against the advice of scientists and engineers. Bad idea. Preventable disasters.
Fast-forward to 2021 with a worldwide emphasis on carbon neutrality and Environmental Social Governance (ESG) investing. The electrification of automobiles is a top priority for green
energy proponents, but when those cars are plugged in, ironically they’re being charged with power mostly from fossil fuel burning plants. Wind and solar are the current alternatives;
however, windmills alter landscapes and produce power only when there is wind. Solar is expensive, requires ample space, and doesn’t produce at night.
Possible Pent-up Demand
Environmental proponents have been against nuclear since the 1960s, but if the narrative around this power source begins to change, there are investment opportunities that could prove lucrative.
Given the drawdown of interest in nuclear energy in past decades, there has also been a drawdown of uranium mining, thus creating a relative scarcity. That alone could buoy prices of the commodity and stocks of the companies that mine it. But if the narrative surrounding nuclear energy becomes more positive, uranium scarcity combined with increased demand ... well, there you have Econ 101. While the future is uncertain, we do know that currently, there are 50 reactors under construction worldwide, according to the World Nuclear Association (opens in new tab), and 100 more are on order or planned.
Curious? Some Pointers Toward Getting Started
If you want to invest in the sector, beware, it’s a bit of the Wild West. Most production comes out of Kazakhstan. One strategy would be to sift through the world of uranium mining companies and hand-select the more reputable names, some of which are as much as 55% off of their all-time highs set back in 2007. If you prefer more diversification and professional management, there are managed ETFs in the space, as well.
If we are, indeed, embarking on a new nuclear age, plays such as these might catch fire.
Securities and advisory services offered through LPL Financial, a registered investment adviser. Member FINRA/SIPC.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax adviser.
The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic and currency instability, and may not be suitable for all investors.
Any investment should be consistent with your objectives, time frame and risk tolerance.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Securities and advisory services offered through LPL Financial, a registered investment adviser. Member FINRA/SIPC.
Brian Murphy is a Market Strategist and Investment Manager at Frazier Investment Management (opens in new tab)in Southern Rhode Island. Before joining the Frazier team, he served in the U.S. Navy for 11 years as a carrier jet pilot. Brian has experience managing several different strategies and products, including equity, fixed income, long/short portfolios and options. He believes that managing risk is the key to successful outcomes and works with clients nationwide to achieve their investing goals.
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