Double Your Money as China Goes Nuclear… and Texas Profits

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

The big-picture case for uranium hardly could be better. On the demand side, China’s imports of uranium have shot up 380% just this year. And with China aiming to bring 100GW of nuclear power online by 2020, this is unlikely to change soon. Thanks in part to China, global demand already is outstripping supply. This year, the demand for uranium will total 182 million pounds. Yet, production will only hit 130 million pounds. The difference will be made up by recycled uranium from utilities stockpiles and disassembled nuclear U.S. and Russian weapons. But stockpiles already are perilously low, the agreement governing decommissioning missiles expires in 2013 and the Russians have no intention of extending it.

The primary focus of Uranium Energy Corporation (UEC) is to develop and consolidate production in the re-emerging South Texas Uranium Belt. On the processing side, UEC’s Hobson facility is a newly refurbished, state-of-the-art processing plant that boasts up to 3 million pounds of annual capacity. And just two weeks ago, UEC announced that its Palangana Project in South Texas has started uranium production using in-situ recovery (ISR) methods. Coming in both on time and under budget, Palangana is the first new ISR uranium mine to achieve production in the United States in more than five years. UEC’s nearby Goliad ISR project is expected to come online early next year. That means within the next six months, UEC should be generating some serious cash flow from producing and selling yellowcake.

At this stage of the company’s development, management is key. And UEC has that in spades. UEC’s operations staff has many decades of hands-on experience in uranium exploration, development and mining, having built almost every ISR facility in Texas. Fortunately, they also get to operate within Texas’ energy-friendly regulatory environment. CEO Amir Adnani’s ambition is to reach 2.5 million to 3 million pounds of production for UEC within five years. To put that in perspective, the entire U.S. production was less than 4 million pounds last year.

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Uranium already has had a bull run earlier this decade, hitting a pre-crisis high of $140 per pound, before dropping to $40. Having recovered to around $60 per pound, investors still are extremely underinvested when it comes to uranium. And with UEC having $37.7 million in cash on hand to develop and construct lead projects, UEC is ideally positioned to benefit from uranium’s bounce.

So buy UEC at market today, and place your initial stop at $4.50. For potentially even bigger profits, I recommend the February 2011 $7.50 calls (UEC110219C00007500).

In addition, we recently stopped out of two of our positions for profits. We produced a gain of 27.21% in iShares MSCI Thailand Investable Market Index Fund (THD). We also notched profits of 3.3% in our Itaú Unibanco Holding S.A. (ITUB) stock trade, as well as an average 26.04% return in the related options that I recommended. Those positive results give us profits in four of our last five trades in both stocks and options, despite the market’s recent volatility.

Portfolio Update

Credicorp Ltd. (BAP) fell back slightly this past week. The bank’s fundamentals remain strong. Earnings per share (EPS) grew by 28.24% over the past 5 years, with EPS growth projected at 23.8% over the next five years. Peru’s biggest bank remains a BUY.

China MediaExpress Holdings (CCME) rose 6.48% this week. Last week, it announced that it has signed two new long-term agreements, which will add a total of 2,067 inter-city buses to its network. That increases the company’s footprint by close to 10%. CCME remains a BUY.

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iShares MSCI Chile Investable Mkt Idx (ECH) fell slightly, even after reaching near record highs. This has held up extremely well in the sell-off and remains a BUY.

ProShares UltraShort Euro (EUO) jumped 6.67% this past week on the growing debt woes of Ireland and Portugal. The euro may stabilize a bit before resuming its downtrend, but with the final chapter on the current crisis far from being written, I am keeping your bet against the euro as a speculative BUY. Raise your stop to $18.00.

ICICI Bank Ltd. (IBN) held above the $50 level for the week. Subject to the whims of global investor sentiment, this will bounce sharply when markets recover. India’s top banking giant is now a temporary HOLD.

Market Vectors Indonesia ETF (IDX) sold off sharply last week. Use this short-term pullback to add to your position. The “Next BRIC” remains a BUY.

Bank of Ireland (IRE) sold off massively this past week, on the news that the Irish government was bullied into taking a $110-billion bailout. Meanwhile, the Bank of Ireland announced overnight that it will be raising $2.91 billion from investors to cushion its capital requirements. Shares also surged this morning on news that more of the company’s toxic property-based loans will be transferred to Ireland’s “bad bank,” the National Asset Management Agency. As I have argued, I believe that the European authorities will do everything possible to keep the banks from failing. Full disclosure: I actually added to my own position in IRE last week. Like the Rothschild’s, I believe it is best to “buy when there is blood in the streets.“ Just don’t bet the farm. If you like the excitement of a real life, play-by-play drama, IRE remains a speculative BUY.

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Ivanhoe Mines (IVN) rose slightly this past week. This long-term bet on the “Mongolian miracle” is a BUY.

Melco Crown Entertainment Limited (MPEL) pulled back slightly this week. With the fundamentals in place, feel free to add to your position on this bet on “Asia’s Las Vegas.” MPEL remains a BUY.

Sina Corporation (SINA) bucked the trend and ended up 3.64% this week. The Wall Street Journal reported that Sina Weibo, Sina’s Twitter, has grown to 50 million registered users, the largest service of its kind in China. With China’s online market set to grow 80% in 2010, “China’s Twitter” remains a BUY

Silvercorp Metals Inc. (SVM) was downgraded to “market perform” from “outperform” at BMO Capital, and the stock sold off on the news. That’s just ridiculous for a company whose production costs of silver are actually negative. Use the pullback to add to your position. SVM remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.

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Mr. Market's mood swings continued this past week, as global stock markets were hit Nov. 23 with the one-two combination of a bailout for Ireland and an attack on South Korea by an impulsive North Korea. Not surprisingly, your position in the iShares MSCI South Korea Index (EWY) pulled back sharply to trade near its stop price of $52.00.

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