Broad Market Correction: Safe to Buy Uranium Stocks Yet?

The rapidity of last week's events caught many investors off guard, with the precipitate being China's Shanghai Composite Index falling nearly 9%; the reason for decline, I might mention, was the government's fear of rampant market speculation, and not attributed to fears of China's economy slowing down. Indeed, one of the influential bulls of our investing world, CIBC's Jeffrey Rubin, noted that where China's economy has grown on average 9-10%/year, its stock market actually declined significantly in the years before this and last, so the correlation is certainly not strong between stock market trends and overall economic outlook in the East.

Rumors of a slowing Asian economy, US sub-prime collapse, or unwinding of the Japanese carry trade notwithstanding, markets found any and every excuse to correct downwards. However, it is important to stress, as I had before during the mini January correction, that uranium fundamentals have not changed. Whether it is commodities guru Patricia Mohr of Scotiabank (at least $90, headed to $100 end of 2007), CEOs Phillip Shirvington and Neil Froneman (>$100) of soon-to-be merging uranium mid-tiers Urasia Energy (UAEYF.PK) and sxr Uranium One (SXRFF.PK) or Australian Bureau of Agricultural and Resources Economics ABARE ($94.20 average this year, $103 average 2008), forecasts for yellowcake have only been revised upwards.

The extra haircut that uranium stocks experienced was NOT because of an annoucement from Cameco, theoretically, stating that its flooded Cigar Lake mine would be coming back online soon, but more likely was becuase uranium stocks were extremely overbought and desperately NEEDED the correction. Too many speculators, too much froth. A chart of Energy Metals below typifies the technicals of many many uranium stocks lately that scream for a much needed correction.


Judging by the double-digit rebound in uranium stocks today, coupled with my view that nothing in the broader macroeconomic world or in the uranium world convinces me something is fundamentally different now than a week ago, I venture to say that the worst is over. Not to say there will not be more correcting now and, certainly, sharp, short corrections will be present in the future, but the risk-reward balance seems to have shifted sufficiently for many uranium investors to have regained confidence already.