stocks, which once inhabited a fairly sleepy corner of the market, are suddenly seeing a deluge of investor interest. Stocks in this sector are seeing gains of up to double-digit percent every day as more capital flows into it.

Although fears about the Evergrande situation in China affecting the wider market has cooled the rally, stocks within this niche sector remain up over 100% in the year since the selloff. What’s behind this surge in uranium stocks, and could this be just the beginning of a more secular trend? 

Sprott Fund Shakes Up the Space

The immediate catalyst that has electrified the sector is the launch of the Sprott Physical Uranium Trust Fund (SRUUF, U.U-TO). Sprott, a prominent player in commodities and precious metals with investment vehicles such as the Sprott Phyiscal Gold and Silver Trusts (CEF), is well-known. It is an enormous multi-billion dollar investment fund so the $1 million uranium fund seems small. It is however a major entrant to the smaller uranium markets. 

The fund quickly attracted investors. Therefore, new units were issued. Proceeds are used to purchase more uranium. The spot price rises because of increased demand. Spot price refers to the price an asset is currently available for exchange in order to take delivery immediately.

The Sprott fund’s introduction has resulted in the most significant increase in uranium spot price over the past years. These Sprott funds are different from their predecessors in that they actually take delivery of commodities they purchase. Sprott’s uranium fund has introduced a new buyer into a previously quiet ecosystem where there was relatively little action aside from utilities and a few hedge funds.

Climate Goals

The Sprott fund has breathed new life into the sector in the short term. The investment community has begun to realize that nuclear energy will be needed to help the world meet its climate goals.  Global demand for energy is expected to rise significantly in the coming decades, so wind and solar energy won’t suffice.

Sprott predicts that global electricity demand will increase by 49% within the next 20-years. The rising population and the rise in standard of living will drive global energy demand. While wind and solar are not sufficient to meet current energy demands, nor is the new demand for energy in decades to follow, it will be necessary to include nuclear energy as part of any real climate solution.

Due to the low price of uranium, many existing mines had to be closed down or transferred into care and maintenance. Some mines that are under maintenance may be able to restart to make use of higher prices in order to meet the demand. However, this will not happen overnight. The process of getting new mines approved and made operational takes several years. Therefore, the current supply/demand imbalance looks set to continue for the long-term in favor of uranium miners.  

New Interest from Reddit’s WallStreetBets

Additionally, uranium has caught the eye of Reddit’s WallStreetBets community – Cameco (NYSE:), the largest and most heavily traded uranium name, was the third-most mentioned stock (APPL) and Alibaba (NYSE:). Therefore, I believe in CCJ stock.

This group of retail investors just adds fuel to the fire. This active, vocal group has been instrumental in moving larger stocks previously. An influx in retail interest may have an impact on uranium names that are smaller and less traded than other equities. 

Based on five Buy and four Hold ratings, the consensus analyst rating on CCJ stock has been rated a Moderate Sell. Average Cameco Corp . Price target of $24.78, which implies a upside of 13.2%.

Takeaway

This often-overlooked section of the market is enjoying a new moment in the sun. Given the long-term supply and demand situation, and the growing realization that nuclear energy has to be a part of the world’s renewable energy mix if climate change goals are to be achieved, this short-term spotlight could just be highlighting the long-term opportunity that exists, as uranium names enter the mainstream for the first time in over a decade. 

Investors who are generalists will notice that different companies trade on various exchanges at different levels of liquidity. This can make it difficult to determine the asset quality or how close they are from production. Investors can look into ETFs, such as the North Shore Global Uranium Mining ETF URNM (URA) or Global X Uranium ETF URA (URA). The aforementioned Sprott Physical Uranium Trust can be viewed (SRUUF.TO), which is traded in Canada as well as over-the-counter in the U.S.

Cameco is the U.S.’s largest, most liquid and heavily-traded stock. The NYSE American exchange also offers reasonable liquidity for U.S. listed names such as NexGen Energy (NYSE 🙂 or Denison Mines Corp. NYSE :. There are more choices than ever for investors who want to gain exposure in this area.