Does Uranium Energy Corp. Deserve A Place In Your Portfolio?

Uranium mining and exploration company Uranium Energy Corp. (UEC - Get Rating) in Corpus Christi, Tex., is engaged in pre-extraction, extraction, and processing of uranium in the United States and Paraguay. It holds interest in several projects, including Palangana mine in Texas, Slick Rock in Colorado, and Alto Parana titanium projects in Paraguay. 

UEC’s stock has gained 84.1% in price so far this year and 62% over the past month. This can be attributed primarily to uranium prices hitting an eight-year high this month, following the recent launch of an exchange-traded trust by Sprott Asset Management LP and the growing utilization of nuclear power as a low carbon emission energy option.

Photo by American Public Power Association on Unsplash 

But UEC’s stock is currently trading 20.7% below its 52-week high of $3.77. Moreover, COVID-19 pandemic-related supply disruptions on uranium mining and issues with processing activities could make it challenging to meet the growing demand. And the industry’s cyclical nature only makes matters worse. This volatile backdrop could cause the stock to experience a  downtrend.

Here’s what could influence UEC’s performance in the near term:

Uranium’s Growing Demand-Supply Gap

Because the use of nuclear energy continues to expand as governments worldwide implement decarbonization measures to combat climate change, demand for uranium to satisfy the capacity of nuclear reactors used to generate electricity has been growing. However, according to the World Nuclear Fuel Report, secondary uranium supplies are expected to have a gradually diminishing role in the world market, decreasing from supplying 14-18% of uranium reactor requirements currently to 5-8% in 2040. Although the partial resumption of operations of idled mines could improve the near-term supply situation, the future production capacity of uranium remains uncertain given that there is only a limited supply of uranium that can be extracted at a reasonable cost.

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