Interactive Investor

Chart of the week: this AIM stock could be a glowing opportunity

7th June 2021 12:43

John Burford from interactive investor

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Nuclear power demand is set to rise, and so could this share price.

Once again, I am veering a little off-piste with this small-cap stock – Yellow Cake (LSE:YCA). Its name derives from the colour of the most abundant ore of uranium oxide – the starting point of fabricating fuel rods for the nuclear power sector.

For traders/investors, they key point is that nuclear power is likely to play a much larger role in our electricity generation as fossil fuel plants are phased out (but not eliminated). 

This company is unique in that it does not explore, mine or process the material.  It offers pure exposure to the uranium U3O8 price as it buys and stores yellow cake from the producers and then re-sells it.

With the company starting life a little over two years ago, there is not a great chart to show! But the shares are pushing up into new highs, and that is what drew my attention:

Past performance is not a guide to future performance.

After the initial flurry, the shares drifted as the uranium price showed little sign of advancing. But last year, when the commodity sector came alive, hope was restored and the shares have been slowly moving up and now have pushed into new highs. I consider this a very bullish omen.

With little chart history to guide me, I cannot offer any meaningful price targets yet.

A side-note: nuclear power generation began life in the UK in the 1950s and in common with all ground-breaking technologies, over-the-top exuberance was fully on display. Many believed that nuclear fission was the way to unlimited free power! No more electricity bills, was the cry. Oh dear.

In more sober times today, with 70 years' experience, the benefits of nuclear power are slowly making headway. Even small-scale local nuclear units that can power a few hundred homes are feasible.

Uranium demand has been weak and little new exploration undertaken. With stocks high and falling, little new mine capacity and demand picking up, I see prices rising in the years ahead.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

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