One of the world’s largest providers of uranium fuel, Cameco Corp (CCJ), plays a surprisingly integral role in the broader energy equation, particularly against the backdrop of the conflict in eastern Europe. Over the long run, I am bullish on CCJ stock.
While previously heralded as a viable platform due to astonishing energy density, the nuclear power industry has suffered considerable setbacks. From Three Mile Island to Chernobyl to, most recently, Fukushima, the enormous dangers of this sector have always imposed a dark perceptional cloud. In addition, horror films referencing the propelling of residual radioactive materials do nothing but cast a negative light.
Collectively, the headwinds against nuclear energy have convinced world leaders to seek alternatives. For instance, just weeks before the Russian invasion of Ukraine, a Bloomberg article noted that Europe was losing nuclear power right when it needed it the most. At the start of this year, The Washington Post reported that Germany was shutting down half of its six remaining nuclear power plants.
Piling on top of the anti-nuclear narrative was the burgeoning pivot to clean and renewable energy sources, particularly wind and solar. Leveraging natural dynamics, the green energy sector is much more palatable to the public. As well, political efforts to promote net-zero-emissions economies across the globe have gained considerable momentum.
Nuclear was seemingly on its way out, but the crisis in Ukraine suddenly materialized, sparking an incredibly cynical but viable tailwind for Cameco.
Cameco Corp Smart Score Rating
On TipRanks, CCJ scores an 8 out of 10 on the Smart Score spectrum. This indicates a high potential for the stock to outperform the broader market.
Nuclear Energy Resurfaces Again
While most countries have made efforts to steer a neutral course regarding Russia’s so-called special military operation, the U.S. and its western allies understandably became alarmed at the paradigm shift of open warfare on European soil. To mitigate the conflict while preventing circumstances from spiraling out of control, U.S.-led sanctions hit the Russian economy.
Of course, the challenge with this response is that Russia is the biggest exporter of oil and oil products to the European Union, supplying 2.2 million barrels per day (bpd) of oil and 1.2 million bpd of oil products – per the International Energy Agency. Further, about 40% of natural gas consumed in the EU originated from Russia.
To maintain effectiveness with the sanctions, Europe must find viable alternatives. To that end, the Yale School of the Environment reported in March that the crisis inspired several EU policymakers to fast-track renewable energy initiatives. While they have the right idea, the dilemma is that building such infrastructures will take considerable time and money.
Nuclear energy? It’s a well-known solution and is ready to go online almost as soon as the broader political will to accept scientific and economic realities emerges. From the patient investor’s perspective, CCJ stock is potentially a once-in-a-generation talent just waiting to be discovered.
Bullish Traders are Piling In
On June 15, Cameco shares were on the receiving end of unusual activity in the options market. Traders piled into the $24 strike call options with an expiration date of July 15, 2022. Volume for this call hit 3,707 contracts against an open interest reading of 849.
To be fair, the volatility that has negatively impacted the broader market provides no exemption for Cameco. Following the close of the June 21 session, CCJ was priced at $21.91, meaning that acquirers of the $24 calls are still out of the money. Nevertheless, it’s possible that the stock itself could gradually move higher.
Beyond the geopolitical forces mentioned above, nuclear energy has the highest capacity factor (around 93%) of any other energy source. What this translates to is a reliable power source that residences and businesses can depend on almost every single time.
Contrast that to wind and solar, which feature a capacity factor of 35.4% and 24.9%, respectively. Because these sources are intermittent (i.e., the sun eventually sets), they’re impossible to depend on exclusively. Just from a practical perspective, Cameco makes a lot of sense – whether it aligns with public sentiment or not.
Wall Street’s Take
Turning to Wall Street, CCJ stock is a Strong Buy, based on eight unanimous Buy ratings. The average Cameco Corp price target is $35.21, implying 60.7% upside potential.
Awaiting Its Time
Zero arguments exist that the public perception of nuclear energy faces significant product evangelism challenges. Specific to Cameco, CCJ stock has been choppy this year. Prospective investors shouldn’t expect an easy ride for the uranium fuel specialist.
At the same time, nuclear energy is not being given a fair shake. With a new global order rudely imposed on the international community, policymakers must get serious about energy security. For all its controversial headlines, nuclear power offers a powerful alternative that cannot be ignored indefinitely.
