Nuclear power appears to have entered a period of renewed demand. That’s exciting news, but how should an investor play it? One way is to invest in a picks-and-shovels stock like uranium miner Cameco (CCJ -2.35%). That isn’t an unreasonable idea, noting that the stock has risen over 120% over the past three years, handily beating the S&P 500 index’s roughly 35% gain over that same span.
Here’s what you need to know before you jump aboard that train, however, because you’ll probably want to temper your millionaire-maker dreams a bit.
What does Cameco do?
From a high level, Cameco mines for and processes uranium into fuel that can be used by nuclear power plants. There actually aren’t that many companies that do this and Cameco is one of the largest publicly traded options you can buy.
One step deeper, however, there’s another layer to consider. Cameco’s primary operations are in politically stable regions, including its home country of Canada. A great deal of uranium comes from politically unstable regions and surety of supply is an added benefit that customers get when they buy from Cameco.
Image source: Getty Images.
All in, Cameco is an attractive way to invest in the nuclear power sector. If demand for nuclear power increases it is highly likely that there will be increased demand for uranium, too. A big part of what appears to be a nuclear renaissance is the reliable and clean energy nuclear power plants generate. It is a good complement to more intermittent power sources like solar and wind.
Notably, Southern Company (NYSE: SO) built the first two new nuclear power plants in the United States in 2024, ending a decades-long hiatus for the technology. And there are a number of start-ups, like NuScale Power (NYSE: SMR), that are advancing new nuclear power plant technologies that could be smaller, less costly, and safer than the more traditional large plants that Southern constructed.
There is a lot of support for nuclear power today, which is one of the reasons why Cameco’s stock has risen so much over the past three years.
Cameco comes with some caveats
That rapid advance, however, needs to be taken with a grain of salt. Uranium is a commodity and it has been moving generally higher over the last few years, too. That is a big part of the reason why Cameco’s stock has been on the rise. Although Cameco tends to favor long-term contracts, it can’t avoid the broader price dynamics. And that is why investors need to be cautious.
Although nuclear power is attractive today, leading to positive trends in the price of uranium, it has gone through many periods where it was deeply out of favor. The most recent period of negativity came after the Fukushima nuclear meltdown in 2011.
That seems like a long time ago now, but uranium prices crashed following that event as countries around the world reconsidered their commitment to nuclear power. Germany even swore off the technology, setting plans to close all of its nuclear power plants. It took around a decade to do that, but there’s clearly something to be considered in that decision for investors.
CCJ data by YCharts
The problem, of course, is that nuclear power is generally very safe but, when something does go wrong, it is a global news spectacle. Big events of the past will probably all ring a bell: Three Mile Island, Chernobyl, and Fukushima. Although there’s no way to know if another meltdown will occur, it seems likely that, given enough time, one will eventually take place. And then uranium prices, and Cameco’s stock price, could fall dramatically.
And, in the meantime, investors will have to deal with the normal supply/demand dynamics that commodity businesses deal with. For example, rising uranium prices are likely to lead to new mines. Uranium Energy (NYSEMKT: UEC), for example, is working on opening a collection of mines in North America. Basically, it is looking to compete with Cameco, which could put pressure on uranium prices in the years ahead.
Cameco could be a millionaire maker, but…
There is a real possibility that the nuclear power industry is on the cusp of a new demand cycle. That would be very good news for an industry supplier like Cameco, as each new nuclear power plant increases long-term demand for uranium.
But investors who decide to play the nuclear power industry via an investment in Cameco need to remember that uranium is a commodity and that nuclear power has material headline risk associated with it. If you can’t stomach those risks you probably shouldn’t buy Cameco.
