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Savings Experiment: Snow Removal"I love buying great companies near the bottom of the barrel," says resources expert Eric Roseman, who has added Canadian-based Cameco Corp. (NYSE: CCJ) to his buy list.
The edtior of The Commodity Trend Alert explains, "Cameco, the world's largest uranium concern, is a gem, right in the middle of a long-term earnings boom amid high energy prices and a massive backlog of orders for its raw material used to feed nuclear reactors." Here is his review.
"I'm drawn to quality at a distressed price, for whatever reason, such as earnings-related surprises, management changes, special one-time write-downs, etc. Most of our recommendations are founded on exactly these principles of value-contrarian investing.
"Cameco Corporation was a $60 stock 12 months ago, but because of production bottlenecks caused by a major flood at one of its biggest mines (Cigar Lake) in late 2006, the stock suffered a beating and has bounced all over the map lately. Yet, for years, Cameco was Canada's uranium darling and I always wanted to own this gem. But the problem was, Cameco always fetched a high price, and I hate paying top dollar - even for a great business.
"In October 2006, Cameco announced a major flood at Cigar Lake, Saskatchewan would dent production forecasts. The stock immediately went into a tailspin, but managed to recover until sub-prime fears gripped global markets again last November. Basically, since late 2006, Cameco shareholders have gone nowhere, even as earnings recover.
"Cameco recently reported 2007 full-year net earnings of $603 million ($1.63 per share) -- 120% higher than in 2006 due to improved results in the uranium business. Adjusted net earnings for the fourth quarter were 60% higher than in 2006 due to higher earnings in the uranium, electricity and its gold businesses. Yes, we get a little gold play with Cameco called Centerra Gold. That's a nice kicker, too.
'I think uranium prices, which are down 45% from their highs of $136 last year, will recover. The trend for cleaner-burning fuels is a major secular trend that's unstoppable. Uranium supplies are currently abundant; at some point, however, uranium prices will rally and break to new highs.
"Another point worth noting is that the higher oil prices go, the greater the potential for a sustained uranium bull market. Oil prices might slide to the mid-$70s this year amid a U.S. and international slowdown, but foreign markets are consuming a greater share of raw materials as the growth engine abroad is far more sustainable.
"Uranium is the fuel of the future, while crude oil will be too expensive to refine over the next several decades. Uranium is here to stay and the world, including China, wants their share. Cameco Corporation is a buy up to $35."
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