In a world where the "experts" on the financial TV shows are willing to predict where the stock market will move in the next two hours, there is a great opportunity for patient investors to profit. While everyone else tries to frantically trade in and out of stocks, patient investors can invest in the best long-term opportunities... and relax.
My approach to investing is based on Warren Buffett's famous dictum: Be fearful when others are greedy, and greedy when others are fearful. Today I see an opportunity that I think fits the bill.
That opportunity is in uranium producers.
I don't have the faintest idea whether uranium stocks will be higher or lower in a month or even a year. I do however expect the stock prices of uranium producers to go much higher over the next decade.
My thesis isn't apparent from the sector's recent performance: Uranium stocks are down 70% from the start of 2011 while the overall market is up 60%.
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Yet I would argue that the uranium sector has better long-term fundamentals than most companies in the overall market. I think investors are focusing on the sector's short-term challenges and missing the big picture.
There are currently 70 nuclear reactors under construction around the globe. The World Nuclear Association estimates that these reactors will require an additional 33 million pounds of uranium a year. The long-term plans for the number of reactors around the world are even larger, with 310 nuclear reactors currently proposed.
This means there is a huge increase in demand for uranium on the horizon -- and that is poised to do great things for the price of uranium (and uranium producers).
These new reactors are coming online because nuclear energy is the best answer to a horrible problem: pollution. For instance, air pollution in northern China is so bad -- eight times worse than in notoriously smoggy Los Angeles, in fact -- that the region's average lifespan is five years less than in the less-polluted regions in Southern China.
An estimated 1.5 million Chinese die every year because of poor air quality. Many other emerging countries aren't much better off.
While many in the U.S. are still quite terrified of potential nuclear disasters, China and the rest of the world aren't. Trading the pollution from coal for the small chance of nuclear contamination is a no-brainer.
The near-certainty of rising demand is a reason to be bullish on uranium and uranium producers. The economics of the industry are even more supportive of the bullish case.
J.P. Morgan analysts estimate that the average uranium price needed to make a new conventional uranium project profitable is $83 a pound. That's 290% higher than the spot price for uranium today.
Today companies that are producing uranium for $70 to $80 are selling that product for $28 a pound. That is not a sustainable situation. The price of uranium has to go up because shortages are going to develop.
In fact, commodity investor Rick Rule says the last time the uranium faced similar shortages, the price ran from $8 to $130 and shares of companies operating in the industry went up tenfold or more.
Combined with the fact that the current spot price needs to triple just for the industry to make a small profit, the strong likelihood of increased demand makes this sector a strong play for the long term.
I plan to profit from this by owning the Global X Uranium ETF (NYSE: URA) which holds the largest uranium producers in the world. Over the next 10 years, these companies should show a big increase in cash-generating ability as uranium prices rise.
This exchange-traded fund holds the biggest and best companies in the uranium sector, so it offers a fairly low-risk way to get exposure.
Obviously, I'm a big believer in these long-term trends, but there is no way to tell how quickly the uranium market is going to respond to them. Only a patient investor is going to be able to take a position here and profit from it.
Risks to Consider: Another Fukishima-scale disaster would be a problem. If something like that were to happen it could greatly slow (or even halt) the construction of new uranium facilities.
Action to Take --> Buy shares of the Global X Uranium ETF for the long haul. If the trends in uranium demand and prices play out as expected over the next decade, investors could double or triple their money over the next decade.