Uranium stocks offer long-term promise—here’s how to pick the best ones

Uranium stocks are shares in companies that explore for, mine and refine the metal uranium.

Uranium’s long-term outlook is positive, but supply remains much higher than demand. That has kept prices low, although the industry’s largest publicly-traded miner, Cameco, has taken measures to offset persistently low uranium prices. For instance, it has in the past suspended production to avoid an oversupply.

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That kind of suspension has helped stabilize uranium prices. However, low oil prices during the first few months of the pandemic has kept uranium down in the near term and could slow the construction of new reactors. If you want to invest in uranium stocks, here are the best ways to cut your risk.

Look at these 4 factors before you invest in uranium stocks

1. Consider the geographic risks of investing in uranium stocks.

Many emerging countries, such as China, India and Russia, are increasing their nuclear-power use as they switch from power plants that run on coal and oil.

While this looks promising, investing in uranium stocks does entail some unique risks. With any mine, for example, there is a long lead time from exploration and discovery to production. That’s especially so with uranium, which needs extra regulatory approval because of its radioactivity.

      2. Like any investment, look at the fundamentals of uranium stocks.

We like to see strong fundamentals in the uranium mining stocks we recommend. We look for low debt, because debt can be a problem for any mining company. When we recommend uranium mining stocks, we want to see a positive cash flow, preferably even when uranium prices are low.

Even better, we like to see mining companies that have cash flow from an existing mine that is sufficient for, or at least contributes to, the cost of developing a second mine.

We look for uranium stocks that have an experienced management team. We like to see teams that have a history of mine development and have financed similar projects in the past.

Download this free report to learn more about fundamentals of mining stocks to discover good long-term investment options.

      3. Exercise caution when investing in junior uranium stocks.

If you are interested in undertaking your uranium investing through junior or penny stocks, we recommend well-financed junior mines with no immediate need to sell shares at low prices, since that would dilute existing investors’ interests. The best junior mines have a major partner who has agreed to pay for the drilling or other exploration or development, in exchange for an interest in the property. We also prefer those that operate in an area with geology that is similar to that of nearby producing mines.

      4. Invest in uranium stocks with a diversified reserve base.

Invest in uranium stocks with a broad base of operations. Even if the company has strong reserves, the best mining company stocks with the least risk also have a diversified reserve base. That way they are not dependent on a single mine’s production or political stability in any one country. Mining companies can also increase their reserves by making acquisitions—with mineral prices down from their record highs, you may see an increase in mining company acquisitions at distressed prices.

You need to look at how long the company’s reserves are likely to last. Those with low reserves need to have consistent success in their exploration programs to maximize the production of the mine and the surrounding area. That success is far from guaranteed.

Bonus Tip: Diversify the resources segment of your portfolio with other energy stocks to stabilize your portfolio

We recommend that most investors maintain some exposure to the Resources sector—including energy stocks—as part of a well-balanced portfolio.

The direction of energy prices depends on a lot of things, particularly economic growth rates around the world. Meanwhile, though, well-established companies in the energy industry can take advantage of the setback to pick up properties and employees who might be harder to find in more prosperous times. Subscribe to our Canadian Wealth Advisor to discover the best companies to invest in to build a diversified portfolio.

Use our three-part Successful Investor approach to make the best mining stock decisions for your diversified portfolio

1. Hold mostly high-quality, dividend-paying stocks.
2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, Consumer, Finance and Utilities.
3. Downplay or stay out of stocks in the broker/media limelight.

How much of your investments are in renewable energy, like renewable and green options?

What is your opinion on uranium stocks? Do they belong in a portfolio or do you feel like they are too specialized?

This post was originally published in 2014 and is regularly updated.