Cameco Stock: Worth the Risk?

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Cameco Stock: Worth the Risk?'s Profile


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Cameco (TSX:CCO)(NYSE:CCJ) stock has gone through some insane ups and downs this year. Since the start of the year, shares of Cameco stock are up just 5.3%, which may not seem like much but is far better than how the market is faring. On top of that, shares are up 23% in the last year.

Yet despite this seemingly defensive choice, Cameco stock has a long history of being risky. And that certainly hasn’t disappeared even with shares at current levels. Cameco stock shrunk after the disaster in Fukushima in 2011. It remained down until recently when a new push for clean energy meant nuclear power plants would come back online. And those plants would need companies like Cameco.

The question is whether the situation will remain as it is for Cameco stock, and if so, for how long?

Current headwinds

There are a number of headwinds that have caused Cameco stock to increase as it has. The most obvious is the clean energy push, of course. Nuclear reactors are being built all around the world, with the ones that were offline powering up again. Some reactors being built are in highly populated countries that will need nuclear power if they’re able to go green. So, all of this has proven great for the uranium producer.

Another headwind was the war in Ukraine caused by the invasion by Russia. Sanctions against Russia included uranium, where the country produces it at a low cost. This left Cameco stock in a strong position to sign on long-term contracts.

The push towards uranium stocks also saw the interest of retail traders, who caused Cameco stock to soar before the market downturn. Shares hit a 52-week high of $41.05, before falling. Now, shares sit at about $29 as of writing.

Will it reclaim all-time highs?

The question is whether the company can return to those all-time highs. And frankly, $41 does seem likely. And it could climb even higher with uranium prices as they are. The cost of uranium continues to climb given that production is far below demand. But Cameco is working on it, acquiring larger stakes in current mines and starting up new ones.

Sure, high uranium prices will remain for a while, and that’s great news for Cameco stock. But the problem is that Cameco stock needs those high prices to thrive. Should they fall away if we find another clean energy source, then Cameco will fall with it.

And the thing is, we’re bound to find a new source sooner as opposed to later. Uranium is hard to mine for, and there is a limited amount. That is why solar, wind, or water power is far more likely to be what we can use again and again. So, Cameco stock could indeed fall overnight if there’s a move towards this energy one day. And it wasn’t so long ago that the company operated at a loss of $40 million, now at a profit of $50 million a year later — mainly due to higher uranium prices.

Foolish takeaway

Cameco stock has had an incredible year, with shares up 153% in the last five years alone. It’s bound to be one of the strongest stocks with uranium prices rising and could very well hit 52-week or even all-time highs once more. In that light, it looks like a great buy.

But should we see supply boom, or a new source of energy comes along, Cameco stock may plummet. In that case, Cameco remains a risky stock you may want to reconsider.



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