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Thanks to the disaster in Japan almost a year ago, the nuclear power sector, and more specifically, companies that mine uranium, have been extremely hard hit. Firms in this corner of the economy nearly collapsed as a variety of nations around the world swore off nuclear power even despite sometimes being far removed from any type of severe weather or natural events (such as Germany). Thanks to this lack of commitment to more nuclear power by some, as well as deep concerns over the safety of the fuel source, many investors dumped everything uranium related in 2011.
As a result, investors who had purchased the Global X Uranium ETF (URA - ETF report) in the time period were likely very disappointed with the performance. The fund, which tracks the Solactive Global Uranium Index, represents a broad benchmark for companies that are engaged in some aspect of the uranium mining industry from across the world. The product debuted in late 2010 so it was around for the entire crisis and thus could be a good proxy for the space and how it has performed in light of this industry changing event (read Is USCI The Best Commodity ETF?).
Over the course of 2011, URA saw its value plummet by nearly 60.9%, falling from a high of nearly 22.40 a share down to a low of just 7.06 a share, a massive selloff that pretty much continued throughout the year. However, despite this terrible performance, the fund has managed to rebound as of late, surging by close to 28.7% in the past month alone. Yet even with this jump, the product is still trading at extremely depressed levels and is down close to 50% over the past one year period.
So while longer term performance figures are still pretty terrible, investors have to be encouraged that the product has finally gotten out of its malaise. It also hasn’t hurt that alternatives fuel sources in the power production space still have a variety of issues as coal remains very dirty and solar and wind power continue to be impossible without huge subsidies. Thanks to this, as well as the passage of time, the uranium industry is finally starting to bounce back to higher levels (also see Does Your Portfolio Need A Coal ETF?).
For intrepid investors, a closer look at URA at this time could be ideal. The product is still trading at solid valuations even taking into account the recent surge as the Price/Prospective Earnings for the fund is below 13.5 while the P/B and P/S ratios are both below 1.2 as well. In terms of holdings, non-U.S. companies dominate the list as Canadian firms comprise a little more than half the assets while Australian companies take up another 23%. From an individual holding perspective, the fund is definitely concentrated as it holds just 24 securities in total, while Uranium One and Cameco (CCJ - Snapshot Report) make up 13.4% and 22.4% of the fund, respectively.
Over the long term, URA seems destined to keep surging higher as major emerging markets will continue to demand more uranium to power their quickly growing economies. This could especially be true as many of these nations do not have the resources to tap into more expensive fuels, forcing them into the relatively energy potent nuclear power instead. While sources such as fossil fuels are an option for these nations, there just simply aren’t enough of them to go around cheaply while wind and solar are still very inefficient and thus not appropriate for many poorer economies at this time. Assuming fuel prices stay high for ‘traditional fuels’, nuclear will probably be a go-to source of power for at least the next decade. Furthermore, investors should note that electricity demand is expected to rise 76% by 2030 while a variety of emerging markets are planning fresh nuclear power plants and many others are looking add to their reactor totals over the coming two decades, nearly doubling the total reactors online in the time period (see Inside The Forgotten Energy ETFs).
With that being said, we could see a pullback in the next coming weeks as URA has pretty much gone vertical to start the year making some profit taking from short-term investors possible. Additionally, investors should note that a variety of mining industries currently have very low Zacks Ranks, while CCJ is currently rated a 4 or ‘Sell’. This is largely due to recent negative earnings surprises as well as slumping expectations for the company’s earnings. Since the company makes up close to one-fourth of the total assets in URA, it may be worth it to wait until CCJ has better estimates or until the Global X fund sees some profit taking. Once this happens, investors could certainly consider URA as a solid long-term play that still has room to run in order to get to pre-Fukushima levels (also read Time To Buy The Rare Earth Metals ETF?).
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