MARKETS SPECTATOR: Paladin pounce

UBS has upgraded Paladin Energy from neutral to buy following the election of Japan's pro-nuclear power LDP – watch for a sector-wide rally.

Ever since the Japanese earthquake of March 2011, uranium stocks have been in a slump. However, the tide turned somewhat over the weekend as the Liberal Democratic Party swept into power.

The LDP is pro-nuclear power and the expectation is that the reactor fleet will slowly be turned back on, which should be a huge positive for the uranium sector as it was feared Japan may become a net seller of its uranium stockpiles.

Against this backdrop, Swiss investment bank UBS has upgraded Paladin Energy to buy from neutral, with a price target of $1.60.

"Our view has been that the uranium price and Paladin would benefit from a re-start of Japanese reactors. The latest change in the Japanese government puts the re-start one step closer, in our opinion, albeit timing remains unclear,” UBS said.

"Nevertheless, we see improving market conditions for uranium and reinstate the buy rating on Paladin”.

The big uranium names in Canada have been on the move too with the likes of Cameco and Uranium One pushing strongly higher.

image

Source: Iress

The above chart of Paladin energy is starting to paint a more encouraging picture. It’s broken up through the short-term downtrend and is now sitting right at a resistance zone. I would not be surprised to see a little bit of profit taking come in around this level before the limited selling subsides and it makes a break higher towards the $1.20 level and medium-term downtrend resistance.

Due to the fact that these stocks underwent such a sharp de-rating, it would not surprise me at all if there was a lot of money that wanted to get back into the uranium sector. This could lead to a sharp rally for the sector so it would be worth watching other names in the space like Energy Resources of Australia, Summit Resources and Berkeley Resources.