Tuesday, February 26, 2008

Glowing Stocks

One of the conclusions you might have drawn from the last post, “Just Below the Surface,” is that there is a wide range of players in uranium mining. First there are the large government-owned conglomerates in Russia, France, Uzbekistan and Kazakhstan. Then there are the large, diversified mining companies with well established revenue streams and earnings. These include companies such as Cameco Corp. (CCJ: NYSE), Rio Tinto (RTP: NYSE) and BHP Billiton (BHP: NYSE). Then there are a few medium-sized companies, such as Paladin Energy Limited (PDN: TSX and ASX) and Mega Uranium Ltd. (MGA: NYSE). Finally, there is a long-string of “small fry.” Many in this latter group are just now trying to get one foot in the door of what is expected to be a renaissance for uranium demand the likes of which we have not seen since the Cold War.

Investors can thus choose a play in this sector based on cash flows and dividends or growth opportunity based on the ability of a newcomer to establish production in a new operation. We note that for the three companies for which there is a consensus growth rate available (BHP, RTP and MGA), the best of the three is Rio Tinto (RTP: NYSE) with a PERGY ratio of 1.1 (PERGY - Risk Adjusted Ratio of Price/Earnings to Growth Plus Yield). The trade off of course is RTP shares trade on any number of factors other than Rio Tinto’s opportunity in uranium, including its environmental performance. Interestingly, Mega Uranium (MGA: NYSE), which is more of a pure-play, follows with a PERGY ratio of 1.3. We also note that MGA currently has the highest dividend yield in the group.

Neither the author of the Small Cap Copy web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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