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A Big Rally in Nuclear to Come?

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It takes as much energy to wish as it does to plan.
– Eleanor Roosevelt
One of the worst areas to invest in over the last year and a half has unquestionably been uranium stocks.  Following Japan’s tsunami and the backlash against nuclear that followed worldwide, demand fell off from an investment standpoint.  However, it may finally be the right time to consider buying into the industry, with the recent catalyst of Japan’s restarting of reactors the spark that could cause a big rally to come.  In addition, recent multi-year plans coming out of China and India to develop nuclear power infrastructure could cause leadership to return.
Take a look below at the price ratio of the Market Vectors Uranium + Nuclear Energy ETF (NLR) relative to the S&P 500 (IVV).  As a reminder, a rising price ratio means the numerator/NLR is outperforming (up more/down less) the denominator/IVV.  A falling ratio means the opposite.

As can be seen on the highlighted area, it is clear where the tsunami and reactor concerns in Japan took place, as the industry on average utterly collapsed in March 2011.  The trend of weakness persisted continuously throughout the year, and only really rallied strongly in January 2012 before making new all-time ratio lows.  Given the severe underperformance in the group and actual catalysts now on the country front, the ratio may be anticipating a better environment to come for uranium.  This is likely an important area to consider a long allocation to as demand increases and supply diminishes in an energy-hungry world.

Twitter: @pensionpartners
POSITION:  No positions in stocks mentioned.