TOU:CC - TSX Energy Sector: Uranium Stocks vs. Natural Gas?
2024-05-06 16:50:00 ET
The global attitude towards energy has been changing for some time now. The push for renewables and EVs are among the two most significant results of this shift. Still, despite our best efforts and massive resources diverted to this cause, the change needs to happen faster, especially regarding renewables.
Renewable solutions still need to be mature/viable enough to replace the traditional energy infrastructure, and uranium is often cited as the best transitional energy source.
That’s one reason new nuclear power plants are being planned and constructed around the globe, and uranium demand is increasing. Still, it would take decades to substantially transition from fossil fuels to nuclear and renewables. As an investor, you have to choose between the two energy commodity segments.
The case for natural gas
Despite being the cleanest fossil fuel option available, natural gas is in third place among the world’s most heavily consumed energy sources. Its uses, which range from power generation to heating and cooking, along with its minimal carbon footprint, ensure this fossil fuel may be the last to experience a massive demand slump.
This makes natural gas stocks like Tourmaline Oil ( TSX:TOU ) appealing as a long-term prospect. It’s the largest natural gas producer in the country and one of the largest in North America. Natural gas is about three-quarters of its total energy production, making its energy profile more sustainable than oil-heavy energy stocks .
Like most other stocks in the sector, Tourmaline experienced a growth surge in the last three years (post-pandemic boom), growing close to 1,000% between its highest and lowest point in the previous five-year period.
This naturally lowered the dividend yield, which is currently at 1.8%, but despite this phenomenal growth, the stock is fairly valued. Tourmaline stock may rise if the sector remains strong or goes bullish again.
The case for natural gas
Between 2021 and 2024, uranium prices have nearly tripled, and the demand is expected to keep rising in the coming years. Some countries are building their first nuclear plants, while others focus on increasing their nuclear electricity yield. With more nuclear plants running, uranium producers like Cameco ( TSX:CCO ) will likely make banks.
Cameco is the second largest uranium producer in the world, after Kazakhstan’s Kazatomprom, and the largest publicly traded uranium company globally. It has a massive land position in Saskatchewan — 1.8 million acres.
It also has a proven track record of consistent production at its proven (and probable) reserves, sitting at around 485 million pounds, ensuring years of steadily growing supply even if the company doesn’t acquire new assets.
Cameco has experienced exceptional growth — over 350% in the last five years, and even though the stock is heavily overvalued (with a price to earnings of 122), it has yet to run out of momentum. However, the growth is no longer consistent, and we may see a correction, especially if uranium prices go down. However, the chances of that seem low.
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Foolish takeaway
Even if you don’t consider Cameco a good pick from an ESG (environmental, social, and governance) investing perspective (as different people have different views about how “green” nuclear energy is), there is no denying that many countries are seeing it as a stepping stone to net zero.
Natural gas may remain in demand and may even fill the gap for countries switching away from oil but can’t entirely rely on renewables yet. Both have their merits and may remain viable investments for years to come.
The post TSX Energy Sector: Uranium Stocks vs. Natural Gas? appeared first on The Motley Fool Canada .
Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Cameco and Tourmaline Oil. The Motley Fool has a disclosure policy .
2024