Headline Investing
Stephen is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On March 11, 2011, the world watched in horror as the island nation of Japan was devastated by a magnitude 9.0 undersea earthquake and subsequent tsunami. The destruction to the country's coastline by the ocean's wrath was incredible, but this quickly fell into background noise as our attention was grabbed by the partial nuclear meltdown at the Fukushima power plant. In the course of a few weeks, a country whose national strategy focused on energy independence through nuclear power changed course and shut down nearly all nuclear plants. The future of nuclear energy sharply came into question, and uranium mining companies such as Cameco Corp (NYSE: CCJ) and Denison Mines Corp (NYSEMKT: DNN) saw their share prices fall like a ton of bricks. Even General Electric (NYSE: GE), whose Energy Infrastructure segment builds nuclear reactors, took some collateral damage.
It wasn't long before my financial news feed featured numerous headlines declaring incredible buying opportunities in uranium miners. Many claimed the market had overreacted to the Fukushima disaster and that future planned nuclear plants would not be affected, especially in Asia. Many countries were temporarily shutting down plants for inspections, and public sentiment worldwide was turning against nuclear power. The greatest question was how Asian countries would react. Nuclear power growth in North America and Europe plateaued around the mid 1990s. In 2010, the International Atomic Energy Agency estimated worldwide nuclear energy generation would roughly double by 2030, with the majority of that growth coming from countries like China, India, Russia, and South Korea.
Investors had good reasons to be bullish on nuclear power. There are about 430 nuclear power reactors operating worldwide, with over 60 more under construction. A worldwide total of 150 reactors are planned and another 330 are proposed. In the United States, the Nuclear Regulatory Commission has approved the construction of a new nuclear reactor for the first time since 1978. All signs indicate that despite Japan's course reversal, the rest of the world is still moving forward with nuclear energy.
The only problem is that nuclear plants take a very long time to plan, propose, gain approval for, and construct. Many investors were suckered into thinking they were buying a uranium miner for a nice short-term gain once the Fukushima news settled down and the market realized the world wasn't turning its back on nuclear power. I fell for this big time, and I learned a valuable lesson: when a knife falls to the floor, wait until it has landed, bounced, and settled before trying to pick it up. Investors who bought into the headlines would have purchased Cameco around $30, a supposed bargain considering the stock had dropped from the low $40s. Those same investors would have watched the stock drop another 30% over the next year as the company struggled with problems related and unrelated to decreased uranium demand.
The future of nuclear energy looks to be sound, and even though I sold my shares of Cameo in preparation for tax season, I am giving the company a second look to add a new position. However, this time it will be a sound and informed investment based on research. It's important for investors to maintain discipline, especially when headlines and analysts are the noisiest. Otherwise, you may find yourself riding a downward spiral on the back of a company you know nothing about.
drfrank1 owns shares of GE. The Motley Fool has no positions in the stocks mentioned above. 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. If you have questions about this post or the Fool’s blog network, click here for information.
