by winston » Tue Dec 05, 2017 12:08 am
vested
Couldn't get much worse
Uranium miner Cameco isn't for the faint of heart: The company just cut its dividend and announced that it was closing more of its operations.
A deep downturn in uranium prices is the main reason. In fact, at this point, it appears to be more cost-effective for Cameco to buy uranium on the spot market than to mine for it.
Why on earth would you want to get involved in that? The answer is twofold.
First, Cameco has a rock-solid balance sheet, with long-term debt at roughly 25% of the capital structure and a current ratio of an impressive 5.4, as of the third quarter of 2017. The uranium market may be tough today, but Cameco is conservatively financed and built to survive.
Second, the company, along with some of its largest competitors, is working to reduce the supply of uranium. That, along with the new nuclear power plant construction that is happening today, should help to alleviate the supply-demand imbalance that has kept uranium prices in a downturn since 2011. When that happens, uranium prices should head higher again.
A graphic showing that 19 nuclear reactors are being built in China, 6 in India, and 4 in the UAE
NUCLEAR POWER PLANTS ARE STILL BEING BUILT TODAY, DESPITE THE INDUSTRY'S BAD IMAGE. IMAGE SOURCE: CAMECO CORP. INVESTOR PRESENTATION, OCT. 2017.
To put it simply, there remains a lot of risk with Cameco; the company's stock is only appropriate for aggressive investors.
And there's no way to tell when uranium prices will start to rebound, so go in expecting continued red ink over the near term.
But Cameco's stock is trading near 10-year lows. It's the largest pure-play uranium miner, it has a solid financial foundation, and it can bring production back online relatively quickly when uranium prices pick up.
When that happens, investors are likely to reward the shares fairly quickly. If you have a strong stomach, Cameco is a turnaround play in which you might be interested, since it's hard to envision things getting too much worse.
Source: Motley Fool
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