Last week, we looked at a few of the success stories – namely Cheniere Energy (LNG) and Energy Transfer Equity (ETE).

Well, now we’re going to look at couple of companies that have underperformed.

I’m talking about uranium producers Cameco (CCJ) and Denison Mines(DNN). Since we unveiled The 10 Must-Own Energy Stocks of 2013 way back in December, Cameco has edged down a little more than 3%, and Denison is down about 1.5%.

That’s not terrible, but we were expecting more – gains at the very least.

Here’s why…

A Nuclear Explosion

If you’re a regular O&E reader, you know that we have something of a fetish for two fuels – natural gas and uranium. The reason is simple. The world continuously needs more power, and natural gas and nuclear offer the best combination of efficiency, cleanliness and affordability.

Alternative sources like wind, solar and geothermal aren’t consistent or inexpensive enough to go mainstream. And coal, so long an energy staple, is fast falling out of favor due to its high environmental costs.

Obviously, nuclear power suffered a setback with the meltdown at Japan’s Fukushima Daiichi plant. Active nuclear reactors were taken offline, plans to build new ones were shelved, and uranium prices plunged.

However, two years after the disaster, the fear associated with nuclear power has begun to recede – just as it did following Chernobyl and Three Mile Island. After knee-jerk reactions and pledges to find alternatives, policymakers have been forced to confront the fact that – despite the risks – nuclear power is their best option.

That’s especially true of China, which has a huge pollution problem and a massive demand for energy. With 17 reactors in operation, another 28 under construction and more than a 100 planned, China is spearheading the nuclear revival.

It’s followed by India, Russia and others.

Indeed, India has announced plans to grow its nuclear power capacity from 5,000 megawatts to 63,000 megawatts by 2030. Four plants are already being built and 39 are awaiting approval.

Russia is looking to increase the proportion of electricity it gets from nuclear power from 16% to 25% in that same period of time.

And while Germany has decided to purge itself of nuclear power, many of its European counterparts – including Great Britain, France and Poland – are plowing ahead.

Great Britain and France – which already get three-quarters of their power from nuclear plants – recently signed a joint declaration of cooperation on nuclear energy.

Poland is pushing ahead, too, much to the chagrin of some of its neighbors. Poland’s electricity consumption is forecast to grow 54% by 2030. But under the EU’s strict climate policy targets, it needs to diversify away from coal, which currently accounts for 92% of the country’s electricity. So it’s planning on creating at least two plants to provide 15% of the country’s power.

In all, 30 countries worldwide are operating 437 nuclear reactors for electricity generation, and 68 new nuclear plants are under construction in 14 countries. More than a dozen countries get more than 25% of their energy from nuclear today, according to the Nuclear Energy Institute.

Hence our suspicion that uranium prices and miners would rise…

So what went wrong?

Getting Past the Fallout

Well, in all honesty, nothing. We still believe a rebound is in the making. It’s just taking longer than expected.

Instead of picking itself up off the mat this year, uranium has slumped even further, as restart dates for more than 40 idled Japanese nuclear plants were delayed.

The yellow metal has fallen to just $34 per pound from more than $70 before the Fukushima crisis and its record high of $150 in 2007.

Cameco’s share price has been halved, as well, tumbling from more than $40 per share before the disaster to less than $20 today. That’s about where we recommended it last year, and quite frankly, we still consider it a “Buy.”

Uranium prices will pick back up eventually. It’s just going to take some time. And in addition to higher demand, they’ll likely get a helping hand from the expiration of the “Megatons for Megawatts” program.

Under the terms of an agreement signed in 1994, the United States purchased uranium from Russia that was originally intended for nuclear warheads.

About half of the fuel currently used in U.S. plants is derived from dismantled Soviet warheads, producing about 10% of the country’s electricity. But it’s running out. About 95% of the fuel targeted under the agreement has been consumed.

Its extinction will help tighten supplies.

All things considered, uranium prices should climb back over $50 per pound next year, and back above $70 per pound in 2015.

So don’t be fooled by their flat performance. Relief is on the way for Cameco and Denison.

–Jason SimpkinsSource: Wall Street Daily

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