- Money Morning Australia

Uranium Stocks – The Restricted Aussie Export That Could Make You Money


Written on 14 February 2012 by Kris Sayce

Uranium Stocks – The Restricted Aussie Export That Could Make You Money

“Mr Shorten said managers needed to do more to improve employee engagement to lift performance and productivity rather than just blame Labor’s Fair Work Act and the unions for their troubles.” – Australian Financial Review, 13 February

That’s rich. For a government to accuse the private sector of being unproductive.

It’s the old pot and kettle situation.

Governments are not only unproductive and inefficient, but thanks to their meddling they harm private sector productivity too.

The fact is most (but not all) businesses achieve success despite government meddling. Not because of it. And there are even some businesses that seem to revel in it.

Why? Because the potential reward is so great that even the pen-pushers can’t put them out of business.


In a moment we’ll discuss the devil-may-care industry that time and again has made investors big returns over the past 20 years.

But first…

Keeping Cheese In, And Rubbers Out

 


You only have to read the list of import and export restrictions to see the hoops Aussie firms have to jump through to stay on the right side of government red tape.

Want to export “cameras or imaging systems for use underwater”? Forget about it. Unless you’ve got a permit from Defence Department and the Department for Foreign Affairs & Trade.

What about butter, cheese or yoghurt? Make sure you’ve got a permit from the Department of Agriculture, Fisheries & Food (DAFF). Think of the turmoil if people started exporting butter without government say-so!

And if you’ve ever wondered why Australia doesn’t have a bigger presence in the “sausage casings” industry, maybe it’s because you need a meat permit from DAFF before you even think about flying the flag for Aussie sausage casings.

But it’s not just export regulations pinning down Aussie businesses. Be careful what you import too. You’ll be pleased to know the Aussie government restricts the import of “Erasers resembling food in scent or appearance”.

Australia is the last bastion in the fight against novelty erasers. (If you think we’re kidding, check out this link.)

No wonder so many Aussie firms are going bust and laying off workers.

Yet why is it some businesses can overcome these restrictions while others can’t?

The resources sector is a perfect example of a red-tape-beating industry. Australia has a bunch of resources in high demand. And there are few other major competitors. In fact, Australia has huge resources of pretty much every bulk and specialty commodity there is.

That’s not the same for other Aussie industries where there’s plenty of global competition.

And that’s what makes it harder for those industries to compete. It’s not because of extreme capitalists earning a fast buck at the expense of workers. But because high costs and red tape makes it hard for Aussie firms to compete.

But as we say, red tape doesn’t stop everyone.
There are entrepreneurs and capitalists willing to invest time and money in one of the world’s most controversial and restricted industries – uranium.

At face value, you’d have to be mad to even bother about looking for and producing uranium…

There’s the cost of finding a resource and proving it’s viable. There’s the cost and red tape to dig the stuff up. The environmental concerns. The limited list of countries you can export uranium to. And of course there are security concerns.

You’d think there would be an easier way to make money. And there is. But few other sectors provide as much bang for your buck as uranium.

Boom or Bust

 


When the uranium sector booms it booms. Uranium stock gains of 20%, 40% or 50% in just a few days aren’t uncommon. And over the past 20 years we’ve seen uranium stocks make big triple- and even quadruple-digit gains in months.

Put just $500 into a uranium stock before it booms and you could cash-out with $5,000 or more just a few months later. But, there is a flipside. When uranium stocks lose favour with investors, the bust is just as spectacular.

You only have to look at the long-term chart of two Aussie uranium stocks to see what we mean – Energy Resources of Australia [ASX: ERA] and Extract Resources [ASX: EXT]:

Energy Resources of Australia [ASX: ERA] and Extract Resources [ASX: EXT]
Click here to enlarge
Source: Google Finance

 


Bottom line: uranium stocks are a great way to make a bunch of money (if you get the timing right). And a great way to lose a lot of money if you get the timing wrong.

But at the moment, our old pal, Diggers & Drillers editor, Dr. Alex Cowie says it’s a great time to speculate on uranium stocks. To the extent he has two open tips on his recommended buy list for subscribers.

In a recent update he wrote:

“When things get sticky for oil, uranium starts looking like a better alternative. In the last few weeks, major uranium stocks have started to pick up significantly. Australia’s largest uranium stock, Paladin (ASX: PDN), is now up 30% since the start of the year. One of Canada’s majors, Uranium One (TSE: UUU) is up 29%.”

Is the rally over? Not according to the Doc. He says, “…institutional investors are recognising deep value in the sector, after prices were overly crucified in the wake of the Fukushima disaster last year.”
(There’s more from the Doc below.)

Add Uranium to Your Portfolio

 


It goes to show you that if the potential profits are good enough, no amount of government meddling and red tape will stop a good idea from making money. The uranium sector is proof of that.

Unfortunately, red tape ties up many other Aussie businesses. But they don’t have the benefit of big profit margins. Simply because in a competitive world where consumers and other businesses can buy a similar product elsewhere, Aussie firms just can’t compete.

So if you’re looking for a big winner, the secret is to punt on stocks where Australia has a competitive advantage. That remains what it has always been: the resources sector… and given current prices, and if the Doc is right, uranium stocks should be at the top of your buy list.

Cheers.
Kris.

P.S. Dr. Cowie says uranium stocks are great value at the moment. And even after some recent gains in the sector, both the Doc’s tips are still in the buy zone. If you’d like to check them out and register for a no obligation trial subscription, click here for details…

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Kris Sayce
Kris is never one to pull punches when discussing market developments and economic events that can affect your wealth. He’ll take anyone to task — banks, governments, big business — if he thinks they’re trying to pull a fast one with your money. Kris is also the investment director for Australian Small-Cap Investigator, Diggers and Drillers and Revolutionary Tech Investor. If you’d like to more about Kris’ financial world view and investing philosophy then join him on Google+. It's where he shares investment insight, commentary and ideas that he can't always fit into his regular Money Morning essays. Read more about Publisher and Investment Director Kris Sayce.

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