Uranium stocks are ripping higher as nuclear energy gets a second look

Published Wed, Sep 15 20214:51 PM EDTUpdated Wed, Sep 15 20215:51 PM EDT

Uranium prices are surging, boosting companies tied to the space, as the metal that powers nuclear energy grabs the attention of the Reddit trading crowd. "After a strong rally in September, Uranium stocks finally got noticed by retail investors this week," noted Vanda Research senior strategist Ben Onatibia. He said a spike in call volumes for stocks in the space is a "sign that speculative retail investors are chasing the momentum." He said that buying was concentrated in the Global X Uranium ETF and Cameco Corporation . Uranium futures hit $44.90 per pound Wednesday, their highest level since December 2012, bringing the year-to-date gain to 44%. The CME only updates uranium prices once per day, unlike other commodities such as oil, which trade throughout the day. Investors are reentering the space as countries worldwide announce targets to cut emissions. "There is an unequivocal consensus that nuclear energy is required to meet ambitious climate change targets," Bank of America said in a recent note to clients, before adding that nuclear power continues to face opposition over safety concerns. Another catalyst for the surge in prices is tightness in the market, after Sprott Asset Management started aggressively buying the physical asset in July. The firm said Tuesday it saw record trading volume in its fund and added another 1.25 million pounds of physical uranium to its holdings. Bank of America said Sprott's purchases have been "unprecedented," totaling what otherwise would have been used by utilities over the course of one to three years. "The stage has been set for a tighter market," wrote analysts led by Riya Kotecha. Miners have cut activity, which leaves the uranium market poised to fall into deficit by 2028, according to Kotecha. The NorthShore Global Uranium Mining ETF , another fund that tracks the space, jumped 10% on Wednesday, bringing its gain for the week to 16%. For September, the fund is up 56.7%. In 2021, the fund's value has doubled. The fund's biggest gainers this week are Toro Energy, Bannerman Energy and Uranium Royalty, although each company has a market capitalization under $500 million. Among the larger names is CGN Mining , which has a $1.1 billion market cap and has gained more than 40% this week. RBC said social media excitement around uranium has been present for several months and remains elevated compared to historical standards. "We believe increased social media attention on uranium may be playing a part in this year's rise in uranium equity valuations and should be taken into consideration by investors evaluating the sector," the firm wrote in a recent note to clients. RBC recently lifted its rating on Cameco to sector perform from underperform, saying it believes the company's valuation will remain elevated thanks to strong investor sentiment. The firm also hiked its target on NexGen to $7 per share, which is slightly below where shares traded Wednesday. "As a developer of the best undeveloped uranium asset, we see NexGen as having significant leverage to the long-term uranium market recovery," analysts led by Andrew Wong said, before adding that the valuation looks rich at current levels. Like Bank of America, RBC believes the market will fall into a slight deficit through the mid-2020s. In the meantime, however, the firm cautioned that a positive feedback loop could drive uranium's price action. Investors can get in on the trade through the Sprott vehicle, which pushes up spot prices, leading to more interest, and so on. —CNBC's Michael Bloom contributed reporting.

Warning signs are displayed near a uranium mill facility in Utah.

George Frey | Reuters

Uranium prices are surging, boosting companies tied to the space, as the metal that powers nuclear energy grabs the attention of the Reddit trading crowd.