Bernanke’s Gift To The Global Bull

This week’s Global Bull Market Alert pick — Canadian mining giant Cameco Corp. (CCJ) — combines the global commodity supercycle theme with the recent turnaround in the price of uranium. As the world’s largest uranium producer — accounting for around 20% of global uranium production — Cameco is the closest thing to a blue chip name in what has been one of the hottest sectors in the past few years.

While many metals markets have been in bull runs, uranium has been on a tear. Between 2000 and its June 2007 peak, the price of uranium shot up from around $7 per pound to $130. Why the huge jump? Blame the law of supply and demand. In 2006, the world’s nuclear reactors used 173 million pounds of uranium. Yet uranium mines only supplied 103 million pounds. The gap was met by dwindling U.S. and Russian government stockpiles of weapons-grade uranium from decommissioned nuclear weapons. And the supply and demand imbalance likely will get much worse. In the past 12 months, the number of proposed nuclear reactors has risen by 67% to 256 as governments across the globe turn to nuclear as a way to cut carbon emissions quickly and painlessly.

Up to January 2006, Cameco’s share price tracked the uranium price closely. Since then the price of uranium at $85 is still 125% higher than in January 2006, while Cameco has only gained around 19% since then. Why the disconnect? The company’s shares were hit badly by flooding at the Cigar Lake mine in the Canadian province of Saskatchewan. The mine had been expected to provide about 18 million tons of uranium a year, or 17% of world production, when it began producing in 2008. But the flood means the mine is now unlikely to come on stream before 2011

And the price of uranium has also dropped precipitously this summer. The credit crunch forced hedge funds to sell uranium holdings to fund losses elsewhere. Demand from utilities for fueling reactors has fallen 72% since peaking in April. And the U.S. Department of Energy’s recent auction of half a million pounds of uranium further diluted the price.

So what makes Cameco a terrific trading opportunity today? After a six-week stalemate, the price of uranium has once again begun to rise. October also tends to be 50% more active than other months of the year as it coincides with the refueling cycles at nuclear plants in the United States. And although it will take some time for Cameco’s management to regain investor confidence following the problems at the mine, the recent drop in Cameco’s share price, combined with a rebound in the price of uranium makes it a terrific time to get into the stock. Cameco agrees. Just last week, it bought back about 5% of its own common shares, representing about $750 million.

So buy Cameco (CCJ) at market today and place your stop at $32.00 For even bigger upside, I recommend the January $42.50 call options (CCJAV.X). Expect some volatility in this stock — both on the up and downside.

PORTFOLIO UPDATE

Our position in Korean steelmaker POSCO (PKX) is now up 85.44%, and Canada’s Potash (POT) is up 52.18%. We’ve made solid gains of 16.87% in U.S./Poland-based Central European Distribution Corp (CEDC) over the last four weeks (and booked 105.45% profit in half of our options). Australian global mining giant BHP Billiton (BHP) has done even better — with the stock up 25.03% — and the options up 129.41%. After a slow start, Greece’s DryShips (DRYS) is back on track and up 9.38% since we recommended it on Sept. 10.

Let’s close out our defensive position in the PowerShares DB G10 Currency Harvest ETF (DBV). The position itself has been flat, but we’re booking a 25% gain in the options here.