Prospecting for Huge Returns in Uranium Stocks

Flip on a light switch or appliance in the U.S. and there's an 80 percent chance that the electricity was generated using fossil fuels.

But despite the popularity of fossil fuels for electricity generation, there is now a surge in demand for another form of energy generation - nuclear.

About 20 percent of the U.S. electricity grid is lit up by nuclear energy. Here in Vermont for example, the Vermont Yankee reactor represents over half of the state's total electric generating capacity. In other parts of the world, especially Asia and India, nuclear energy is a new necessity in meeting the growing demand for inexpensive power.

The surge in nuclear power demand could be a boon for investors that buy the right stocks. In fact, 100 percent or even 1000 percent gains over the next several years are not unheard of.

***Nuclear energy generates headlines when its use is discussed in countries like Iran and North Korea. But in other countries it's far less of a controversial energy source. Right now there are 441 nuclear reactors operating in 29 countries - together they produced 2.6 trillion kilowatt-hours of electricity last year.

Over the next 20 years, experts say the worldwide use of nuclear energy is expected to nearly double. The industry's growth will create massive demand for uranium - the yellow metal that fuels nuclear reactors. Already the price of uranium has reached a two year high.

As the Cold War ended and the superpowers backed away from hoarding nuclear weapons, uranium was re-purposed for peaceful uses. That helped to suppress uranium prices and minimized the need to develop new sources.

Yet since March, uranium spot market prices have risen 50 percent, bringing to mind a bullish run-up like that seen in 2006-07.

The interest in nuclear energy means more uranium is needed. And since much of the world's current supply comes from such unstable regions as Kazakhstan and Africa, currently operating mines can't meet demand.

The big unknown in uranium production is China. According to this Reuters report, China is looking to expand its nuclear capacity from 11 gigawatts to 70 gigawatts in the next decade. Chinese officials have said the country can produce the nuclear fuel that it needs, yet industry experts predict that China will become more dependent on imported sources in the years ahead.

***If Uranium Energy Corp.'s (AMEX: UEC) plans in south Texas pan out, U.S. production could increase dramatically. Founded in 2003, the company acquired a portfolio of mining projects in 2004 and ramped up its potential as a uranium producer in early November.

The stock has taken off lately, as shares of Uranium Energy reached a 52-week high of $6.48 on November 26.

Kevin McElroy, editor of Wyatt Investment Research's own daily e-letter Resource Prospector has been digging into uranium price trends and mining stocks. He recommended large cap mining giant Cameco Corp. CCJ, which operates the world's largest uranium mine, to his readers on August 31, and reiterated his buy recommendation for Cameco on November 10. Shares are up 53 percent since his first recommendation, and have risen 2.5 percent since his reiteration, bucking the trend while the broad market has slumped.

Cameco is the big dog and has produced healthy investment gains lately. But the big money will be made small-cap stocks like Uranium Energy Corporation which has seen shares rise 180 percent since August 31 - that's more than triple the return of Cameco over the same time period.

*** Uranium Energy has many small cap competitors: USEC Inc. USU, for instance, supplies low enriched uranium that is used in 150 commercial reactors, and Uranerz Energy Corp. URZ is an exploration stage company with properties in Wyoming, Texas, and Saskatchewan, Canada. Both stocks have seen shares rise, although not as much as shares of Uranium Energy Corp.

Uranium Energy is following a playbook of proven assets: It controls heaps of historical mining data, including 40 years' worth amassed by Kerr-McGee in the U.S. and Australia. All told, Uranium Energy is sitting on uranium databases covering U.S. exploration in 23 states, primarily in Texas, Arizona and Wyoming. That's a huge library, and a very valuable asset.

UEC's operations are centered in Texas, a state with a rich belt of uranium deposits including the Palagana Project which is 100 miles from the company's processing facilities in Hobson. It is developing three other Texas sites. If the company can deliver consistent supplies of uranium out of Palagana, its stock could continue to rise. Profitability, which could come in 2012, would be another positive catalyst for the stock.

Uranium looks poised for another bull run, and I think companies like large cap Cameco and small cap Uranium Energy will trade higher over the next year. As always, please be sure to do your own research before buying shares of any company I discuss.