URA - URA: Nuclear-Related Stocks Consolidating After The Pandemic Surge

2023-03-29 16:18:29 ET

Summary

• Nuclear energy is seen as a bridge fuel to a low-carbon future.
• With shares of URA down sharply in the last two years, valuations are better, but technical damage has been done.
• I spot a pair of key price zones on this Canada-heavy and Energy sector-exposed fund.

Nuclear energy continues to be a hotbed of controversy despite the ongoing energy threat across Europe. Companies engaged in the development of uranium, a key material for nuclear energy generation, surged coming out of the pandemic, led higher by rising power costs across Europe and the broader speculative fervor that gripped markets through 2021.

Recently, though, the combination of lower energy prices and a total withdrawal of froth in markets around the world has been awful for the Global X Uranium ETF ( URA ). And I see risks ahead should one key price point break.

European Energy Crisis In Check For Now: TTF NG Prices Sink

For background, the Uranium ETF offers investors a targeted play on uranium mining and the production of nuclear components. The issuer states that nuclear power emits zero direct emissions during operations. What's more, the ESG trend, while taking a breather, may persist into the coming years and decades as governments pledge to reduce fossil fuel production and reliance. Nuclear could be the bridge to a zero-carbon world. URA's portfolio is a play on just that. Keep your eye on further domestic and international nuclear power plant retirements - should the lives of such facilities be extended, that will be a tailwind for uranium-producing firms.

Carrying a somewhat high 0.69% annual expense ratio and with more than $1.3 billion in assets, it is a costly way to access a concentrated portfolio. Still, the median 30-day bid/ask spread is just five basis points while tradeability is decent, but not perfectly liquid, considering that URA's typical volume is more than 500,000 shares. URA houses 53 individual stocks and pays a small 0.8% dividend (distributed semiannually).

Morningstar's data show that the fund is mixed across the style box, holding both value and growth, but it's primarily a small and mid-cap ETF. The portfolio is tilted to the growth factor and ranks high on momentum, but recent price action has been lackluster and highly volatile. The forecast P/E multiple of URA is lofty at more than 22, per Global X, using 2023 earnings estimates. Its price-to-book ratio is more tame at just 1.58.

URA: Portfolio & Factor Profiles

Investors should know what they own with URA. It's 56% exposed to the Energy sector, with another 41% in the cyclical Industrials and Materials portions of the global market. The more fears of a global recession creep up, the worse URA may do. Like many commodity equity ETFs, there is a high percentage in Canada and Australia, so there's currency risk for U.S. investors.

URA: Sector and Country Breakdowns

If we check out the seasonal trend from data out of Equity Clock , we find that Q2 and Q3 are bad times to be long this fund. Notice in the chart below that the only bullish period on the calendar is from early December through mid-February in its more than 10-year history. So, this is a bearish factor to weigh.

URA: Bearish Seasonality Through October

The Technical Take

With a somewhat high valuation and exposure to global growth, there are risks present in the chart, too. Notice in the graph below that a descending triangle is persistent. If URA breaks support in the $17 to $18 zone, then I see next support in the low teens. A breakout above resistance between $23 and $25 could lead to an eventual move to the upper $20s. For now, there's high volume by price in this high teens to mid-$20 area, so any break away from that will be significant for the future trend.

URA: Mid-$20 Resistance, $17 Support

The Bottom Line

I am a hold on URA. The fund continues to hold support and the valuation is not particularly expensive for a speculative part of the market and its exposure to a long-term energy need. I hope to revisit this one later this year to see how the chart has evolved.

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