URNJ ETF: Aggressive Bet on Surging Uranium Prices

Uranium prices have surged over the past year, and the Sprott Junior Uranium Miners ETF (NASDAQ:URNJ) is an aggressive way to invest in this theme, which could still have plenty of upside ahead.

I’m bullish on URNJ based on the strong potential for higher uranium demand over the long term, its portfolio of small-cap uranium mining stocks (which stand to benefit handsomely from this increased demand), and its attractive dividend yield. Plus, sell-side analysts see significant potential upside for this $413.3 million ETF. 

What Is the URNJ ETF’s Strategy? 

According to Sprott ETFs, URNJ invests in an index that is “designed to track the performance of mid-, small- and micro-cap companies in uranium-mining related businesses.”

Sprott explains that this is the only pure-play ETF focused on smaller uranium miners, and it selects these uranium mining stocks for their “significant revenue and asset growth.” 

It’s worth noting that this is a fairly new ETF without much of a long-term track record because it launched in 2023, but its performance has been impressive thus far.

Favorable Long-Term Picture for Uranium

Recent news of the U.S. government enacting a new law to ban the import of Russian uranium put uranium in the spotlight and sent uranium stocks soaring in the short term, but there are plenty of long-term reasons to be bullish on the sector. 

While uranium may seem like a relatively obscure part of the market, the bull case for uranium miners is fairly simple. Sprott explains, “The uranium market is experiencing increased demand, driven by its integral role in clean energy generation through its use in nuclear power.” Uranium is increasingly viewed as a climate-friendly way to meet the world’s growing energy needs. At COP28 (the global climate change conference), 22 countries pledged to triple the world’s nuclear energy capacity by 2050. 

Demand is increasing and has long-term tailwinds at a time when supply can’t keep up. Sprott explains that the gap between uranium supply and demand is expected to widen to a cumulative deficit of one billion pounds by 2040.

As we’ve seen with other commodities like copper, companies can’t simply build a new mine overnight due to cost, regulations, and operational complexities. Therefore, bringing new supply online in the short term is easier said than done. In fact, new mines can take 10-15 years to begin operating. This favors companies with existing assets, such as active mines and mines that can be restarted, like the stocks that URNJ owns.   

Additionally, Sprott says that disruptions to production are likely, which further skews the picture in favor of uranium producers like the stocks that URNJ holds, as disruptions to supply can drive prices higher in a tight market. The aforementioned example of a ban on the import of Russian uranium is one example of this, and other uranium production also comes from geopolitically sensitive areas like Niger.

Portfolio Gives URNJ Torque

URNJ holds 33 stocks, and its top 10 holdings account for over three-quarters of the fund (76.8%). This is not a particularly diversified fund, but as a directional bet on junior uranium miners who should profit in a uranium bull market, that is not really its intent. Below, you’ll find an overview of URNJ’s top 10 holdings using TipRanks’ holdings tool.

As you can see, URNJ’s top holding is Paladin Energy (OTC:PALAF). Shares of the Australian company, which has significant uranium assets in Namibia, are quietly up a remarkable 154.8% over the past year. Paladin also enjoys a “Perfect 10” Smart Score from TipRanks.

The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A score of 8 or above is equivalent to an Outperform rating. The score is data-driven and does not involve any human intervention.

Paladin isn’t URNJ’s only top holding with a 10 out of 10 Smart Score. It’s joined by Australia’s Deep Yellow Limited (OTC:DYLLF) and the U.S.’s Energy Fuels (NYSEMKT:UUUU).

You won’t find major uranium stocks like Cameco (NYSE:CCJ) here, as URNJ is focused on junior miners. These smaller uranium mining stocks are an aggressive, high-risk, high-reward way to invest in the theme of long-term uranium demand growth, as these smaller stocks should have more leverage to both the upside and downside of uranium prices.

A key reason for this dynamic is that many of these companies have lower production levels or are in the pre-production phase. An increase in uranium prices can have a pronounced effect on the economics of their projects, potentially turning a marginal or even unprofitable project into a highly profitable one. This effect can dramatically impact their valuations compared to larger companies with diversified assets.

Furthermore, many of these companies are reliant on external financing for their projects, and increasing prices (and improving sentiment towards uranium) can help them secure better investment terms.

Therefore, an investment in URNJ is a high-torque way to invest in the theme of rising uranium prices, as these stocks often exhibit higher sensitivity to uranium prices based on these factors.

An Attractive Dividend Payout

URNJ is a dividend payer and currently yields an attractive 3.3%. The primary attraction of investing in the fund is certainly to capture the potential upside of uranium miners, but the above-average dividend yield is a nice added bonus. 

Steep Expense Ratio

One downside of investing in URNJ is that it comes with a fairly heavy expense ratio of 0.80%, meaning that an investor in the fund will pay $80 in fees on a $10,000 investment annually. 

That being said, this ETF invests in obscure uranium mining stocks across a diverse array of geographies that many investors may not be able to access otherwise, so the high expense ratio is somewhat understandable. 

Is URNJ Stock a Buy, According to Analysts?

Turning to Wall Street, URNJ earns a Moderate Buy consensus rating based on 17 Buys, 17 Holds, and zero Sell ratings assigned in the past three months. The average URNJ stock price target of $35.75 implies 24.5% upside potential.

The Takeaway: The Long-Term Picture Looks Favorable

I’m bullish on URNJ based on its unique position as an undiluted way to gain exposure to small- and mid-cap uranium mining stocks.

These stocks are attractive over the long term based on the potential for a significant increase in uranium demand in the years ahead, especially because the current supply looks unlikely to keep up with demand. This setup puts these uranium miners in a strong position. Given their smaller market caps and higher leverage to rising prices, these junior mining stocks look like a good way to capitalize on the long-term upside this theme presents.  

Additionally, analysts see significant upside potential for the ETF, and it features an attractive dividend yield. 

URNJ’s expense ratio is on the higher end, but if uranium demand continues to rise and junior uranium miners continue to reap the rewards, this expense ratio will be easy enough to write off as the cost of doing business.

Disclosure