1 May 2007 – I start this blog entry with ignored almost no more because though I know savvy investors have been on board with uranium stocks for quite some time now, even dating several years back, I still know from my conversations with long term investors that the great majority of investors, even as of today, have still never considered purchasing uranium stocks. 
Although the truly easy returns have already been made with uranium stocks, since I believe that we are still firmly entrenched in the uranium bull market, I thought it appropriate to devote a couple of blog entries to uranium. Since I always preach that identifying ideas and sectors poised for explosive growth before the mainstream even starts to consider such assets is the real way to build wealth, all of our paid-up maalamalama members know that I have been preaching uranium’s merits since day one inside of our members-only investment system, though I have decided not to blog about uranium at all in our public, free forum up until now. So this certainly is not the beginning of the “get in while nobody knows about it” period. The easy 293% gains of a certain Australian-listed uranium stock and the easy 266% gains of another Canadian-listed uranium stock, in less than a year’s time, are all but over. However, significant gains going forward are still available in this industry if, and this is an extremely important if…if you know what you are doing when you buy uranium stocks.
Let me qualify that previous statement again with a warning. Simply knowing that there are still enormous gains to be made in this industry is not enough to make enormous gains in this industry. You can be sure that there will be many companies that add “uranium” to the name of their companies just to try to fool investors into buying their stocks. Again, you must know how to separate the true players from the fakers in this industry. If you don’t , your large losses are just as guaranteed as the large gains I fully expect our members to make in this segment in the future. Again, though we reserve the “know how” for our maalamalama members only, I’ll still discuss within this public forum a number of promising developments in the nuclear industry that are well worth tracking, though again, the more detailed analysis will be reserved for members only.
To begin, Australia’s PM John Howard recently stated that his government will immediately start developing a regulatory framework for the nuclear industry that will lift the current state ban on nuclear activities and allow for an expansion of the uranium industry. He backed up these objectives with this statement: “The expert advice that my Government has received clearly shows that Australia is giving up a major economic opportunity as a result of the excessive barriers that have been put in place to prevent uranium mining and export.” This change in attitude from the conservative PM towards nuclear activities is significant, as I believe that it is now only a matter of time that the current ban on “no new uranium mines” is lifted, a policy that has existed for almost two decades and that has prevented Australia, a country that possesses 36% of the world’s low cost uranium reserves, from becoming a greater global leader in uranium production. Currently Australia only operates three uranium mines, Olympic Dam and Beverly in Southern Australia and Ranger in Northern Australia.
In fact, though all paid —up maalamalama members knew that uranium was specifically the reason why I liked BHP so much as a safe low-risk, high reward play, I, in fact, alluded to BHP’s potential in my February 7th, 2007 blog entitled They Don’t Apply the Rules of Shopping 101 to Buying Stocks. Back then, although I had owned BHP for quite some time already, I wrote this: “Let’s take BHP Billiton, the world’s largest, diversified mining company, to illustrate the point of this blog entry. For the past couple of months, when BHP Billiton was trading below $40 a share, and it stayed below $40 a share for a long time, I told several friends that were looking for something to buy that BHP under $40 a share was a good buy.
For two months, they could have bought BHP between $37 and $40 a share, but yet I doubt that any of them did. Why? I know the mindset of most investors. Most investors want to see large increases in price before buying into a stock instead of buying it when it is beaten down in price. From a psychological standpoint, when they see a stock leap up 15% to 20% in price, they think they can hop on board and continue riding the wave higher. Sometimes this works, but the majority of times it does not.
But back to BHP. This past week, BHP announced a $10 billion buy back of their shares on top of an already announced $3 billion buy back, a move that will benefit shareholders. Although the CEO Chip Goodyear announced his resignation and will be replaced before year’s end, his resignation, given BHP’s management depth, is not a huge concern. After an announced 41% increase in profits (just below the street’s expectations) and their massive 9% share buyback program, I saw that a couple of analysts upgraded BHP. And that’s precisely the problem. While BHP traded sideways for two full months between $37 and $40 a share, let’s say a more forward looking investor [that had not yet established a position in BHP] bought in at an average price of $38.50 a share.”
So when BHP was trading sideways between $37 and $40 a share for a full eight weeks back then, nobody was interested in BHP. Even most of those that I specifically told, BUY THIS STOCK because it’s on sale now, did not. And then there was a time again in March where BHP descended to almost $40, and still those that missed out on the second, third and fourth opportunities to buy this stock when it consolidated for 8 weeks between $37 and $40, missed out on a fifth opportunity to buy in this stock at an elevated, but still low risk- high reward, price point.
There are a number of junior Australian uranium stocks that have appreciated quite a bit in price, but with any strong pullback, would still be attractive stocks going forward. Always remember if a stock has soared recently, it doesn’t necessarily mean that it’s a great buy and will continue to soar. Sometimes it means that management is extremely savvy in selling their “story” and a stock has soared based upon speculation only. However, if the company is truly sound and the stock has soared, also know that its risk-reward set up has drastically changed. In the case where this scenario exists, it is best to enter the stock only on dips in price and substantial positions on strong corrections in price as they will inevitably happen. However, in such a volatile industry, you never want to waste an opportunity that comes about. Sometimes a strong correction in a stock’s price, as much as a 30% drop in one day, will occur only to be followed by a 70% rebound over the next several weeks. If you’re one of our maalamalama paid-up members, keep an eye out in the next week or so for a Special Member Alert about the uranium market.
Up next: The Coming Uranium Futures Market
[tags]uranium stocks, nuclear energy, Australia, Olympic Dam, Beverly, Ranger, no new mines policy, BHP Billiton[/tags]
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J.S. Kim is the founder and Managing Director of maalamalama, a comprehensive online investment course that uses novel, proprietary advanced wealth planning techniques and the long tail of investing to identify low-risk, high-reward investment opportunities that seek to yield 25% or greater annual returns.
