Is Cameco stock the best renewable energy stock for you?

Written by Amy Legate-Wolfe of The Motley Fool Canada

In terms of market gains this year, Cameco (TSX:CCO) is one of the best choices. Shares of the uranium producer are seeing gains while other renewable energy companies are seeing declines.

But that was then and this is now. And now some renewable energy stocks are coming back. So, with this in mind, is Cameco stock really the best renewable energy stock for your portfolio?

Bull side

Cameco stock is considered a strong renewable energy investment for a number of reasons. Nuclear energy is considered a key factor in the transition to a low-carbon future. Unlike fossil fuels, nuclear power produces electricity without emitting greenhouse gases during operation, making it a key element in the fight against climate change.

Cameco shares are one of the largest producers of uranium necessary for the production of nuclear energy. In addition, it is a leading uranium mining company with significant expertise and long-term contracts with utilities around the world. Established market presence and experience provide a competitive advantage. It even operates some of the largest and highest quality uranium mines in the world.

Moreover, Cameco has a strong balance sheet and prudent financial management, which are key to dealing with the cyclical nature of the uranium market. The company has a history of maintaining liquidity and successfully controlling costs. With the addition of the Westinghouse business, it looks like it should continue for at least the next few years.

However, there may be some reasons why investors may want to exercise some caution or at least consider other renewable energy investments.

The bear case

There are several reasons why you should consider Cameco stock not so much a long-term buy, but rather a buy for the next few years. Even though it is a low-carbon energy source, nuclear energy is often not classified as “renewable energy” because it relies on uranium, which is a finite resource. Many investors looking to invest in renewable energy prefer companies that deal in truly renewable energy sources, such as solar, wind and hydropower, which harness inexhaustible resources.

The story continues

Additionally, as we have seen in the past, public perceptions of nuclear energy can be negative due to concerns about nuclear accidents, radioactive waste disposal and the potential for catastrophic accidents, which may discourage some investors. This can cause the stock price to drop suddenly, even overnight.

Moreover, the nuclear industry is highly regulated, and changes in government policy, particularly in response to public opinion or environmental movements, could significantly impact the industry. Countries may move away from nuclear power for security reasons or political pressure, as seen with Germany’s nuclear phaseout after Fukushima.

Then there are the basics. Nuclear waste management is a significant challenge. High-level radioactive waste requires safe, long-term storage solutions that are not only expensive, but also face strong public opposition and regulatory hurdles.

Moreover, the price of uranium is volatile. Cameco’s financial performance is closely linked to the price of uranium, which can be highly volatile due to factors such as geopolitical events, supply disruptions and changes in demand. This dependence may result in fluctuations in revenues and profits, which constitutes an additional element of risk for investors.

Conclusion

So while Cameco plays a key role in the nuclear energy sector, its alignment with the broader renewable energy investment category is questionable. Investors focused solely on renewable energy may find that companies focused on solar, wind or other renewable technologies are better suited to their investment goals due to lower regulatory risk, more favorable public perception and true renewable energy sources. Ultimately, it all comes down to your own investment portfolio and risk profile.

The post Is Cameco Stock the Best Renewable Energy Stock for You? appeared first on The Motley Fool Canada.

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Dumb Author Amy Legate-Wolfe has no position in any of the companies mentioned. The Dappled Jester recommends Cameco. The Motley Fool has a disclosure policy.

2024