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Stock Strategist

Cameco’s a Rare Mining Growth Story

The company plans to increase uranium production substantially over the next several years.

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 Cameco (CCJ)/(CCO) is our top pick in the mining sector because of its leverage to rising uranium prices, which we expect to rise to $65 per pound by 2019 from $26 per pound currently. The shares are trading at a wide discount to our fair value estimate of $18/CAD 23.

Uranium demand is driven primarily by government policy and the economics of nuclear reactors. While European electricity demand would be affected if economic growth slows because of the contagion of other countries besides Britain exiting the European Union, nuclear power generation should remain fairly resilient because it provides baseload power with lower operating costs than other forms of generation. Once turned on, nuclear reactors run continuously for one to two years before requiring refueling.

David Wang, CFA does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.