In recent history, attitudes toward nuclear energy have varied considerably. After the 2011 Fukushima Daiichi disaster in Japan, many countries reduced their dependence on nuclear power. As a result, they scaled back plans for new nuclear facilities, decreased investments in nuclear energy, and even closed existing plants.

However, the tides are changing again, and there has been a recent resurgence of interest in nuclear energy. With countries and companies striving for net-zero emissions goals, there is a renewed focus on nuclear energy to provide a cleaner-burning and dependable energy source.

Cameco (CCJ -3.85%), one of the world's largest uranium producers, is poised to benefit from changing market sentiment. The company is strategically positioned in the industry and could benefit from the recent resurgence in demand for uranium. Here's what you should know to determine if Cameco is the right investment for you.

Reasons to buy or hold Cameco

The recent surge in artificial intelligence (AI) has technology companies scrambling to rethink their approach to energy. While many have committed to cutting emissions, growing demand from data centers drives robust demand for alternative energy sources. Goldman Sachs projects that data center power demand could increase by 15% annually through 2030 and eventually account for 8% of total power demand in the U.S.

Nuclear power is regaining favor on the global stage. For example, in 2023, several countries signed the Declaration to Triple Nuclear Energy, pledging to triple their nuclear energy capacity by 2050. This initiative has received support from 14 major financial institutions like Bank of America, Citigroup, Morgan Stanley, and Goldman Sachs, showcasing nuclear energy's pivotal role in fulfilling energy requirements.

Cameco is one of the largest uranium producers and has significant mining operations in Saskatchewan and the United States. The company also holds a 40% interest in a joint venture with Kazatomprom in Kazakhstan (the largest uranium-producing country) and a 49% stake in Westinghouse (which it shares with Brookfield Renewable Partners).

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The company operates two uranium mines in Canada, at Cigar Lake and McArthur River. It also manages one of the world's largest commercial refineries in Ontario and produced an estimated 23.1 million pounds of uranium last year.

Significant efforts are being made to increase nuclear energy capacity, including upgrading existing plants, extending operational lifespans, and even bringing retired nuclear facilities online. For example, the U.S. Nuclear Regulatory Commission is looking into getting the Palisades nuclear power plant in Michigan, which shut down in May 2022, back online. It would be the first-ever recommission unit in the U.S. if approved.

Reasons to sell Cameco

When investing in any commodity producer, you are vulnerable to the industry's cyclical nature and demand shifts. Market dynamics heavily influence uranium prices, and any shifts in public sentiment could have a significant impact on its prices.

For example, from 2011 until just a few years ago, many countries significantly reduced their reliance on nuclear power after the Fukushima disaster. At the same time, uranium production was robust, and uranium prices collapsed. Cameco's earnings results and stock performance struggled as well.

More recently, Cameco's third-quarter earnings disappointed. The company missed estimates and posted a net loss during the period. As a result, the stock looks extremely overvalued at nearly 262 times its trailing-12-month earnings. Given its cyclical vulnerabilities and high valuation, investors may view today as a good time to take profits.

CCJ PE Ratio data by YCharts

Is Cameco right for you?

Cameco's valuation is high, so it is understandable if investors wish to sell. However, the stock is priced at a more reasonable 43 times this year's forecast earnings.

According to an analysis from Citigroup, the price of uranium could average around $110 per pound this year as demand outstrips supply. Over a longer time frame, the International Atomic Energy Agency (IAEA) projects that nuclear capacity could increase by as much as 2.5 times from current levels by 2050.

As Cameco is one of the largest uranium suppliers globally, rising demand should be a tailwind for its business. The company has a solid foundation and commitments from buyers for 29 million pounds per year, on average, through 2028. Given the long-term demand for nuclear energy, I like Cameco as a stock to hold on to for the long term and benefit from these shifting trends.