It’s been four months since Japan’s nuclear disaster hammered uranium stocks… and set up a potential “bad to less bad” trade.

To recap, uranium is the fuel that powers nuclear reactors. And uranium stocks of all kinds were decimated in March in response to the disaster many simply call “Fukushima.” Big blue-chip uranium producer Cameco fell 25% in just a few days. Smaller, more speculative uranium stocks fell 50% in the same time.

After seeing such a big haircut, any contrarian investor has to be interested in the possibility of buying uranium for a potential “bad to less bad” rally. So let’s take a look at where we stand today…

[ad#Google Adsense 336×280-IA]First, we should note the Fukushima disaster has sent European countries running from nuclear power. Germany announced it would shut down all its nuclear power plants by 2022. That’s 10 gigawatts of power… an enormous amount that now must come from other sources. It’s like shutting off the power to half of New Jersey.

Germany’s reaction is irrational. It’s like selling your car because a friend drove his car into a volcano. This irrationality is difficult to “price in” when trying figuring the value of uranium assets.

Also, earlier this week, I spoke to one CEO of a junior uranium explorer. He believes that this uncertainty will make it tough for uranium juniors to raise money this summer to fund exploration. That’s bad news.

Junior companies can’t borrow money from a bank… They have no assets. The only way junior miners can raise money is through selling new shares. As share prices fall, it takes more new shares to raise the same amount of cash.

Without the cash, these companies can’t drill… which drives down the share price. It’s a vicious circle, one that is hammering even the most qualified juniors.

Take a look at this one-year chart of uranium junior Bannerman Resources. It’s still heading lower:

And it’s not just speculative juniors. Uranium giant Cameco also just reached a new multi-month low. There’s no bottoming process even close to taking place here:

Given the risky outlook and the awful charts, it’s smart to simply keep the uranium sector on a “potential buy” list right now.

The next 12 months will likely reduce the field of companies dramatically. I have a short list of the best companies in the sector. I’ll look to acquire shares once the trend in uranium finds a bottom.

But as you can see from Bannerman and Cameco, a bottom just isn’t here yet.

Good investing,

— Matt Badiali

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Source:  The Growth Stock Wire