Mining the Newsletters for Uranium

I don't know about you, but I get about 2-3 dozen newsletters in my financial inbox everyday. It seems that if you subscribe to one, your inbox is instantly filled with “stuff” from other sources you've never heard of. I usually just send them to the cyber-shredder, but sometimes I open one up to see what they're selling. Who knows? I just might be able to pick up a few pearls of wisdom hidden among the hype.

One in particular caught my eye recently, although it isn't new. They've been dusting off this puppy for the past few years and using it as a selling tool. Here's the deal: If you subscribe to their investment service, they'll “give” you a free report on the next energy play that could “reap you more than 25 times your investment.” It sounds almost too good to be true, right? So, I thought I'd let out my inner Nancy Drew and investigate what they had to say. Perhaps I could beat them at their own game.

First of all, their “little” come-on isn't so little. I was going to print it out but that would have eaten up 27 pages of paper! (Maybe if they shortened their come-ons more people would be inclined to read them.) So that you, dear reader, won't have to suffer similarly, I've distilled the salient points for your reading pleasure.

The Come-On (er, Premise):
1. The world is running out of oil. (Duh)
2. Even “Big Oil” isn't investing in it. Rather, they're buying back their stock at the expense of further exploration and creating new refineries. One reason is that it takes too long for new refineries to be built and come on-line (10-20 years).
3. Major governments are committed to reducing their consumption of oil and gas (the US included) because it isn't eco-friendly.

Okay, so now that they've got you primed for the pitch, what is the new energy replacement?

Uranium, of course. (As if you couldn't guess that one.) I mean, this isn't new news. Uranium has been a hot topic (sorry for the pun) for that past couple of years. Now here's where the urgency comes into their pitch.

The Need for More Uranium:
1. It's much cheaper and cleaner than oil.
2. Current demand is exceeding supply by a ratio of 2:1 and with more reactors world-wide slated for construction, the demand will even be more severe. China in particular has a voracious appetite for it.
3. Uranium is mined in US-friendly countries as opposed to many oil-producing ones (i.e., much of the Middle East and Venezuela).

The Case for Mining Stocks:
According to this source, “Last year only 58% of the uranium consumed in the world came from mining. The rest came from the depletion of dwindling reserves.” The logic then follows that to make oodles of money, one needs to invest in uranium mining companies, but which ones? This is where they hope to snag you.

They list five stocks that they feel are due for “unprecedented” gains. Since they want you to subscribe to their service to find out, they naturally aren't going to come out and tell you the names. Instead, they offer hints. Today and over the next couple of days I'll be going through each of these five stocks to see if we can't come up with them.

Clues to the First Uranium Mining Stock:
1. The company is basically a copper miner and owns the largest copper assets in the world. It's a fact that many copper mines are naturally rich in uranium.
2. As the company mines the copper from one if its largest mines, the uranium comes along with it so the cost to mine uranium is essentially “free.”
3. J.P. Morgan owns 4.4 million shares and Citicorp owns 6.6 million shares.

They claim that if you buy the stock now, you can expect to gain over 300%.

So what is this stock? From what I can deduce, it's BHP Billiton (BHP). Their Olympic Dam mine in Australia is the world's fourth largest copper mine and it's also the one where the uranium comes along with the copper. Checking on institutional ownership of BHP, I found that JP Morgan does indeed own a large chunk of BHP (1.32 million shares), but couldn't find any reference to Citicorp. (They might have had to sell their shares because of the credit crisis, but this is just a conjecture.)

BHP's stock has been marching consistently upward since 2003, gaining over 570%. (Maybe if you had bought the stock a couple of years ago you would have realized a 300% profit as they claim.) It also pays a 1.6% dividend yield. The company boasts a 45% ROE (return on equity) and low institutional ownership (less than 6%). Technically, the stock has been taking a breather in recent months, but if it can break its $80 resistance level, then you might want to add it to your portfolio--but do your own due diligence first! This is a huge conglomerate with multi-national operations; copper and uranium are only part of it's holdings which means that if any of its other sectors underperform, the stock price will reflect that. In short, BHP is more than just a uranium play. For further info, check out the company's website: http://www.bhpbilliton.com/

Tomorrow I'll spill the beans on the other four stocks. Stay tuned!

[As a disclaimer, I do not have any affiliation with the investment newsletter firm mentioned above. It puts out a decent newsletter but I don't know anything about its investment advice services nor can I vouch for its track-record.]

Posted by Dr. Kris at 12:52pm PST