Ignore the Noise: Cameco (CCJ) is a Long-Term Buy

While investors are still focused on resoundingly popular sectors such as artificial intelligence, many are now training their eyes on the soaring uranium market. After hitting a multi-year low in 2016, the global price of uranium has been steadily rising to the summer of last year. Since then, the market has gone parabolic, with the latest price hitting $106 per pound of uranium oxide concentrate, also known as “yellowcake.”

With the dramatic surge in value, several uranium stocks have skyrocketed. Among them is Cameco (CCJ), a Canadian enterprise and the world’s largest publicly traded uranium mining firm. Primarily, the company mines and mills uranium ore to produce uranium concentrate, the yellowcake referenced earlier. Also, Cameco supplies uranium fuel to nuclear power utilities around the world, along with investing in other parts of the nuclear fuel cycle, including enrichment and fabrication.

Logically, it plays a massive role in the broader uranium value chain, acting as a critical link between uranium mining and power generation entities. Think of Cameco as the transmission of a combustion-powered car. While an engine generates power, it can’t translate that into actual mobility until it can be transmitted to the wheels.

In the nuclear realm, Cameco helps bridge the gap between the upstream (mining and milling) component of the uranium industry and the midstream (conversion of yellowcake to uranium hexafluoride, a gaseous compound that’s in the form needed for nuclear enrichment.

Further, as Barchart contributor Tony Daltorio states, producers like Cameco buy uranium supply to meet their contractual obligations. And that’s where the investment opportunity in CCJ stock arises: it’s getting very tricky to find this supply.

According to The Wall Street Journal, Kazatomprom – Kazakhstan’s state uranium company – disclosed that “shortages of key materials such as sulfuric acid are making it difficult to produce as much yellowcake as before.”

But to Daltorio’s point, “uranium makes up a small proportion of the overall cost for nuclear power, given how expensive reactors are to build. That translates to utilities having little concern as to what the price of nuclear fuel is.” That’s putting Cameco in the driver’s seat, making CCJ stock a possible long-term buy.

Unusual Options Activity Paints Some Noise Against CCJ Stock

With all that has transpired in the nuclear energy market recently, it comes as no surprise that CCJ stock ranked among Barchart’s list of unusual stock options volume. However, it appears that investors have seen enough. With shares gaining 40% in the trailing six months, some are taking bets that a correction will materialize.

Following the close of the Jan. 22 session, total volume for CCJ stock options reached 121,763 contracts against an open interest reading of 382,662 contracts. Against the trailing one-month average metric, Monday’s volume represented a lift of 122.92%. Breaking down the details, call volume printed 20,607 contracts while put volume soared to 101,156 contracts.

This pairing yielded a put/call volume ratio of 4.91, an unsightly figure if you’re a bullish investor. However, a face-value reading can be deceptive without understanding which side the smart money is on. To get a better picture, Fintel’s options flow screener – which exclusively filters for big block trades likely made by institutions – reveals that major entities bought put options against CCJ stock.

Specifically, on Monday afternoon, the screener revealed 10,056 contracts purchased of the CCJ Jan 26 ’24 42.00 Put, with a premium paid of $40,000. It’s an aggressive bet because the option expires this Friday. However, it’s also not an unreasonable wager. Shares closed at $46.18 on Monday, meaning that it needs to decline a bit over 9% for the contract to be at the money.

In the past five sessions, CCJ stock lost 8.15% of equity value. So, it’s not an impossible proposition, especially if negative momentum builds. Nevertheless, whatever happens in the next few days, the longer-term narrative likely favors the bulls.

For one thing, the optimists face several sold calls that are waiting to be blown up:

• 5,033 contracts sold of the CCJ Feb 9 ’24 50.00 Call ($710,000 premium received).
• 5,005 contracts sold of the CCJ Feb 9 ’24 55.00 Call ($595,000 premium received).
• 618 contracts sold of the CCJ Mar 15 ’24 41.00 Call ($363,015 premium received).

Second, there’s little indication that the supply woes will be addressed anytime soon. Per another WSJ article, Kazatomprom raised its production targets for 2025 but stated that it might not be able to hit it. If this is the new paradigm in uranium, CCJ stock may have more upside remaining.

Nuclear ‘Proliferation’ is Practically an Inevitability

Among the major talking points in the market right now is fading demand in the electric vehicle market. Once heralded enthusiastically – and some might say aggressively – as the future of mobility, some advocates are questioning their bravado. To be sure, brutally cold conditions in many parts of the country haven’t helped matters.

Still, leading experts in the EV space remain confident that over time, the sector will work out its kinks. When it does, combustion cars may be on their last legs. Indeed, legislation banning the sale of new gasoline-powered vehicles may see widespread adoption. But if that happens, it raises an obvious question: who’s going to charge all these EVs?

I’m telling you right now – the infrastructure is not ready to accommodate a full pivot to EVs. In order for this to realistically happen sometime in the future, nuclear energy is a non-negotiable element. There’s nothing out there that levers the energy density of nuclear fuel.

So, we can have EVs forced down our throats (I guess). But that future will not happen without nuclear energy. And that makes CCJ stock a compelling opportunity for forward-thinking investors.

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