Why Cameco Corporation Shares Fell 12% in July

By Reuben Gregg BrewerMarketsFool.com

That's uranium, not paint. Image source: Cameco Corporation.

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What: Cameco Corporation's(NYSE: CCJ) stock price fell 12% last month. That caps a year-to-date loss of 22%. It's been a tough spell for the world's largest publicly traded uranium miner.

So what: Cameco had been holding up relatively well in July up until the last few days of the month, when it reported earnings. In fact, prior to reporting earnings, the shares were only down around 3% or so in the month. That's pretty impressive, too, given the news out of Japan that an anti-nuclear power governor had been elected in the only region with a running nuclear power plant.

Japan shut down all of its nuclear reactors after the Fukushima disaster in 2011 and has only recently been looking to start them up again. The decision to shut down reactors had a huge impact on the entire uranium industry and helped to create a lot of uncertainty in the market, pushing uranium prices lower. If Japan backtracks on its plans to restart its nuclear fleet, that headwind will return. Couple that with an oversupplied market, and it's no wonder that uranium prices have been weak this year.

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So when Cameco reported a quarterly loss of $0.35 a share on July 28, it wasn't the least bit surprising. The company earned $0.22 a share in the same quarter a year ago. And even adjusted earnings weren't all that great at a loss of $0.14 a share -- well off the results from last year, when adjusted earnings came in at $0.12 a share. Clearly, it's tough for Cameco right now.

However, it was the outlook that probably hurt the most. Cameco essentially told investors that things are bad, which investors already knew, but that there wasn't a clear indication of when the uranium market would see notable improvement. With that kind of an outlook, no wonder the shares ended the month with a 12% loss.

Now what: The long-term picture for nuclear power hasn't really changed. Nuclear power plants are being built in key markets like India and China and that should help to support long-term demand for uranium. But this long-term view doesn't do much to assuage investor concerns over the near-term problems, which are very real and are having a big impact on Cameco's top and bottom lines.

All told, Cameco probably isn't the best option for conservative investors. However, if you believe that nuclear power has a bright future globally as emerging economies turn to the low-carbon power option, Cameco's struggling share price could be a contrarian opportunity -- but only if you have a strong stomach.

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Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.