On July 18th 2018, the U.S. Department of Commerce announced it was launching an investigation into whether the import of Uranium into the country posed a national security threat. The scope of the review will be broad spread – from it’s mining to its consumption in electricity generation, defense uses and other industrial applications.
And that has created a unique opportunity for Penny stock investors/traders to super charge their portfolios.
The Commerce Department action was spurred by a complaint lodged by two domestic Uranium companies – Energy Fuels Inc. (NYSEAMERICAN: UUUU) and Ur-Energy Inc. (NYSEAMERICAN: URG). The bone of contention is supply and demand. UUUU and URG claim that 40% of the Uranium consumed by the U.S. is produced outside of the U.S., in countries like Canada, Russia, Uzbekistan and Kazakhstan. So, where’s the investment opportunity?
Well, this Section 232 action could result in tariffs and quotas being imposed on those foreign producers. The Uranium imported from those sources could become more expensive – considerably so! – than that offered by UUUU and URG to local consumers (the U.S. Military, Power plants). If that were to happen, UUUU and URG order books would swell, and they may also be able to pass on a slight increase in the price of their commodity to their clients.
In the longer-term, UUUU and URG are hoping that the status quo that was thirty years ago, when domestic U.S. consumption was met by over 50% of local production, is revived. Today, with slightly over 5% supply coming from local producers, there is tremendous upside for investors in these two penny stocks – if the thesis plays out as they (UUUU and URG) expect it to.
Momentum is on your side
As long as the Commerce Dept. continues to carry on with its investigation, expect upward price momentum to continue in both these names. That’s because, based on other similar reviews (Aluminum, Steel, Chinese Tech), it is expected that the end result will likely be imposition of tariffs on Uranium imports into the U.S.
Should such a verdict be announced, we could expect new money to quickly pile into the two names, fueling further price increases. As is evident from the price movement graph above, there have been significant moves in both names over the past 30-days. Investors holding these names over that period would have averaged a cool 20% plus gain in their portfolios.
Beware of radiation!
Before you venture out to build a position in UUUU or URG, remember that penny stocks aren’t like other “normal” equities that you might be holding in your portfolio. Unlike bank and insurance stocks, they usually don’t pay you a dividend while you wait for price appreciation. And they are not like any of the technology issues (FANG stocks) that have earnings momentum behind them either.
So, why then would you invest in equities like UUUU or URG? Well, you do that if you:
a) believe in the “story” that the Commerce department review will result in a ruling favoring the domestic Uranium industry
b) are certain that there will not be any negative fall-out from tariffs being imposed on Uranium imports – like its price spiking, causing downstream industries (power, mining, health and food sciences) to collapse. This would have a deleterious effect on Uranium producers
And finally, like most other Penny stocks we’ve discussed in the past, you’ll want to invest in these two names in order to ride a tide of volatility.
The graph above shows how these two tickers have moved since July 18th – the day that the Commerce Department review was announced. You’ll need to keep a close watch on how that review unfolds over the next little while, and you’ll need to be able to stomach the volatility (both upswings and down-turns) that the news brings.
Uranium is an interesting investment but these MUST BUY Stocks are set to soar
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Author does not have investment in stock discussed in this article.