Cameco Stock: Hedge Funds Loading Up on This Dividend Stock
February 20, 2017
Smart Money Bullish on Cameco Stock
Hedge funds are backing up the truck on Cameco Corp (NYSE:CCJ) stock.
Billionaire Jim Simons owns 389,000 shares. Other Wall Street titans–including Ray Dalio, Ken Griffin, and Chuck Royce–have been quietly building positions.
And for good reason. The last time this happened, Cameco stock surged 1,700%. In the meantime, shareholders are collecting lucrative dividends.
Let me explain.
One of my favorite ways to find top dividend stocks is to troll through hedge fund holdings.
Hedge funds are some of the best investors on the planet. They have a huge staff and limitless resources. When you see a lot of activity in a stock, you can be sure something big is going on.
That’s not to say you should invest in every hedge fund pick. They are, however, a great place to generate ideas. Any dividend stock being bought by hedge funds is a name worth researching further.
Case in point: Cameco stock.
Cameco is one of the largest uranium miners in the world. The company’s McArthur project produces 12% of the world’s total supplies. Shares, however, have been hammered in recent years, with the plunge in uranium prices. (Source: “World Uranium Mining Production,” World Nuclear Association, last accessed February 17, 2017.)
Hedge funds think the worst is over. Last quarter, John Overdeck of Two Sigma Advisors initiated a new position in Cameco stock. Neil Chriss of Hutchin Hill Capital also started buying shares. (Source: “Cameco Corp (CCJ) – Hedge Fund Holdings,” Insider Monkey, last accessed February 17, 2017.)
Other managers own large stakes, too. Billionaire Ken Griffin owns 321,000 shares, according to the latest SEC filings. Other hedge funds, including Renaissance Technologies, Bridgewater Associates, and First Eagle Investment Management, hold big positions as well. (Source: Ibid.)
The activity could be a sign of a bottom.
Uranium stocks have crashed 90% from their highs. The industry has declined every year since 2011. You’d have to go back to the Great Depression to find a sector down six years in a row.
And there’s good reason to be hopeful. Low uranium prices forced large miners to cut output and small players into bankruptcy. As a result, U.S. production has dropped to an 11-year low. (Source: “Uranium Prices: US Production Falls to 11-Year Low, But Price Impact Likely Negligible,” Economic Calendar, February 17, 2017.)
And while investment has dried up, demand continues to grow. Worldwide, over 60 nuclear reactors are being built, with another 150 in the planning stages. This will increase the amount of electricity generated from nuclear power by 40%, outstripping uranium stockpiles by the end of the decade. (Source: “Uranium Prices Set to Head Higher,” Energy & Capital, February 16, 2017.)
In many ways, the situation resembles what we saw in the early 2000’s. Following years of low prices, investment in new supplies dried up. The resulting shortage sent uranium prices soaring from $20.00/lb to $135.00/lb.
Big, well-financed miners like Cameco stock could be the biggest winners.
I’ve often described Cameco as the Amazon.com, Inc. (NASDAQ:AMZN) of uranium. As the biggest producer in the industry, the company can keep costs low. This has allowed it to survive the current industry turmoil, while paying out a nice dividend to boot.
Thanks to the leverage in the business, however, profits can soar if uranium prices recover. Even a small increase in spot rates can translate into a big increase in earnings. Through the last price cycle, CCJ stock soared over 1,700%.
Source: StockCharts.com
In the meantime, shareholders are being paid to wait. Today, CCJ stock pays a quarterly dividend of CA$0.10 per share, which comes to an annual yield of 2.6%. And as we’ve seen in previous cycles, this modest payout could soar if uranium prices rally.
Bottom line, the public hates uranium right now.
Some of the smartest investors on the planet, however, are quietly buying positions. What could have these hedge funds so excited? I’d say it means one thing: they see a big rally ahead.
