After a multi-year run of disappointing investors, the Global X Uranium ETF (NYSEArca: URA), which tracks uranium miners, started rebounding in significant fashion in the fourth quarter. That ebullience has carried into 2017 with the uranium exchange traded fund higher by more than 23%.
However, investors still need to approach URA with some caution. For example, URA has pulled big in a big way after touching a 52-week high. From that high above $19, URA now resides closer to $16, a decline that took just a few weeks to materialize.
Adding to the recent pressure on URA is that uranium prices continue tumbling. As is the case with other mining equities stocks and ETFs, rare are the occasions when these investments rise while the material they mine loses value.
“Don’t be swayed by the arguments of future nuclear reactors in China, India, etc. Instead focus on the here and now. The uranium futures chart is telling you the truth, not the so-called experts marketing their investment newsletters. When the price of uranium turns decidedly positive, then and only then is it time to start investing in uranium companies,” according to a Seeking Alpha analysis of URA and uranium.
Earlier this year, uranium prices saw temporary relief after U.S. and five other permanent United Nations Security Council members backed plans for Iran to receive a 116 metric tons of natural uranium, with a huge shipment of natural uranium from Russia.
The uranium market has also been steadily strengthening as negative sentiment surrounding the 2011 Fukushima disaster in Japan reverse. Japan has been paving way for its nuclear power plants to restart operations. Still, there are concerns regarding URA.
“The structure of URA is horrendous. 15 of the 22 stock holdings are penny stocks in the true sense i.e. a stock price less than $1. I expect that the majority of these companies will fail in the next couple of years, or suffer large cash infusions that will dilute shareholder equity,” notes Seeking Alpha.
Since Election Day, plenty of sector and industry exchange traded funds have emerged as beneficiaries of Donald Trump’s stunning victory. One of the Trump trade ideas, and one accessible via ETFs, that is flying somewhat under the radar is nuclear energy.
Another ETF for accessing the nuclear trade is the VanEck Vectors Uranium+Nuclear Energy ETF (NYSEArca: NLR), which takes a broader approach, including exposure to large and more stable utilities.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.