Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Final Quarter Energy Trends for Uranium and Green Energy

Commodities / Energy Resources Sep 30, 2007 - 02:46 AM GMT

By: Elliot_H_Gue


Best Financial Markets Analysis ArticleThe final quarter of the year is always a crucial period for the energy markets. The quarter marks both the beginning of the winter heating season and a time when refiners look to rebuild their crude oil inventories. Often, trends that emerge during the quarter carry through into the new year.

With crude oil prices hovering above $80 per barrel and natural gas recovering from its midsummer lows, the fourth quarter of 2007 promises to be even more pivotal for the energy patch than normal. In this week's issue, let's take a look at two trends I'll be watching carefully as we head into the final weeks of 2007.

Nuclear Power/Uranium

The fourth quarter of the year is a great time to look for a strong move higher in uranium mining stocks. There appears to be a strong seasonal tendency for uranium miners to bottom out sometime between the end of August and late October and rally through into 2008. Check out the chart below for a closer look.

TEL 070928 Uranium
Source: Bloomberg

To create this chart, I simply divided the price of Cameco by the S&P 500. Therefore, when these lines are rising, Cameco is outperforming the S&P 500 and vice versa. I used Cameco not because it's my favorite miner--it certainly isn't--but because it's the biggest pure-play uranium miner and is often considered a benchmark for the rest of the industry.

Note that I've plotted three lines on this chart, representing three different years: 2005, 2006 and 2007. While the lines aren't exactly the same, you can clearly see that all three rise from late October through at least early February. That means that Cameco has a strong tendency to outperform during this time frame; that's even more significant when you consider that the fourth quarter is seasonally a positive one for the market in general.

Cameco actually outperforms a rising market during this time of the year. While this chart shows only the past few years, I did look back further in time and the same basic pattern seems to hold.

I'm not normally a big fan of pure seasonal arguments for buying stocks. But, this tendency does make some fundamental sense. After all, the fourth quarter does bring the onset of the winter heating season in the Northern Hemisphere, a time of rising demand for electricity and nuclear power.

In addition, volume in the spot market for uranium tends to decline during the summer months. This spot market is never particularly liquid but during the summer months, volume all but fades away. As spot market activity picks up again in the fall, that refocuses attention on the uranium markets.

This year, the ratio appears to have bottomed in late August, somewhat earlier than normal. Nonetheless, I believe uranium mining firms are now in the first few weeks of a seasonal rally that will carry into 2008.

In addition to this seasonal effect, investors shouldn't ignore NRG Energy's recent decision to apply for a new nuclear plant construction permit. This is the first construction permit application to be filed in the US for nearly three decades. While this single plant won't mean much for global uranium demand, it's a sea-change when it comes to sentiment. Remember that many investors, no matter where they're based, remain stubbornly US-centric so a new nuclear plant in the US would serve to underline the fact that a nuclear renaissance is underway.

The NRG plant is located on the site of an existing facility, helping to quell opposition from local residents. In addition, NRG looks likely to get significant technical assistance from Japan, an experienced player in the nuclear industry. Japanese firms may even look to take a direct financial stake in the project, helping to ease the large up-front capital costs required to build a new plant.

The status of this application will be widely watched by the rest of the industry. It's likely to become a sort of roadmap for other would-be nuclear plant builders in the US.

Alternative Energy

Alternative energy stocks are hot. Earlier this week, I took a closer look at the performance of all of the recommendations in The Energy Strategist --a detailed monthly review I undertake. Of all the stocks, my alternative energy plays were the best-performing; on average, my alternative energy picks are up around 20 percent since the end of August.

I suspect the cause of that run-up is a huge wall of cash that's being invested in environmentally friendly “green” funds. I saw a version of the chart below in Monday's issue of the Financial Times .

TEL  070928 GreenEuros
Source: Financial Times

This chart shows the total amount invested in funds that focus on environmentally friendly green investments; a big portion of that would be renewable and alternative energy technology firms. The data covers only the European market for such funds. Through the end of July alone, green funds attracted more than 4.5 billion euros in investments ($6.5 billion). That's 50 percent more than the entire investment in 2006 and 2007 is barely halfway over yet. Amazingly, that investment accounted for 15 percent of all monies invested in equity funds in Europe so far this year.

In addition, myriad new indexes have been created during the past twelve months to track the profitability of such investment themes as global warming, alternative energies and ecologically sustainable investing. The latest is a series of indexes created by HSBC to track themes such as electricity generators with low emissions, energy efficiency companies such as insulation manufacturers, and pollution control technology firms.

Up until the last year or two, alternative energy firms have been considered a sort of backwater of the energy business. These companies are still tiny when compared to the big integrated oil companies or the big services names. As you can imagine, all that cash and investment piling into a relatively short list of stocks is pushing prices higher.

Of course, government subsidies and investments are also powering growth for the industry. Many investors assume such subsidies are exclusively a developed-world phenomenon, but that's just not the case. China is now the world's sixth largest wind power producer and has plans to become No. 1 in the next three to five years. The government there has a target to boost renewables (including hydropower) to 15 percent of the grid by 2020. A big part of that is offering assistance and tax breaks for wind and other alternative power technologies.

Whenever you hear of that degree of hype and excitement surrounding a single group of stocks, it's logical to ask if it's an unsustainable bubble for the group. And certainly, there are some elements of a bubble in place; valuations have been getting stretched for some companies in the alternative energy patch.

My view is that the alternative energy sector isn't yet generally in an outright bubble. Unlike tech stocks in the late '90s, valuations are supported in many cases by accelerating growth backed up by government largesse. Ironically, the alternative energy sector is less vulnerable to an economic slowdown than most sectors of the energy patch; the reason is that growth in the group is powered by government subsidies.

That said, making money in the group will increasingly be a matter of selectivity and stock-picking rather than throwing darts at an list of stocks involved in this market. There are still plenty of companies that aren't getting the attention they deserve despite strong leverage to alternative energy and environmental themes.

By Elliott H. Gue
The Energy Letter

© 2007 Elliott H. Gue
Elliott H. Gue is editor of The Energy Letter , a bi-weekly e-letter as well as editor of The Energy Strategist , a premium bi-weekly newsletter on the energy markets. Mr. Gue is also associate editor for Personal Finance , where he contributes his knowledge of the energy markets.

Mr. Gue has a Master's of Finance degree from the University of London and a Bachelor of Science degree in Economics and Management from the University of London , graduating in the top 3 percent of his class. Mr. Gue was the first American student to ever complete a full degree at that university.

Elliott H. Gue Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in