Investors eyeing uranium stocks that have been battered by Japan’snuclear crisis might want to consider the beleaguered sector as acontrarian play.

Shares of uranium companies have been hammered as a result of Germany’sannouncement last month that it would shut down its nuclear reactors by2022, and reports that Japan may close its 54 reactors by next springbecause of safety concerns.

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While investors’ nervousness about the future of nuclear power willlikely weigh on the sector over the next few months, uranium prices andtheir stocks should head higher in the longer term, market observerssuggest.

“Making money in minerals requires a contrarian attitude,” says RickRule, chairman of Sprott Inc.’s U.S. brokerage subsidiary GlobalResource Investments Ltd. “When things are out of favour, they arecheap. When they return to favour, you have to sell them …

“I think that there is a chance to make an awful lot of money in athree- to five-year time frame,” Mr. Rule added. “Uranium is highlyunpopular and becoming more so, but I don’t think that the politicalwill exists worldwide to have the lights go out.”

Mr. Rule is skeptical that Germany and Japan will be able to followthrough on their proposals to shutter plants, because it is not clearhow either would be able to replace nuclear sources of power.

And the global supply of the uranium remains tight, he said. “In thenear term, the world is using about 30 per cent more uranium than itsupplies. The rest is coming from the stockpiles of weapons-grade andfuel-grade uranium.”

Bullish for the Long Term

Mr. Rule said he favours stocks of hard-hit junior uranium companiesfocused on the Athabasca Basin in Western Canada, especially those withprojects that are large enough to be takeover targets by major miningcompanies or state-owned resource companies in China and India.

Rob Lauzon, a Calgary-based portfolio manager with Middlefield CapitalCorp., is also skeptical that Germany will be able to follow through onits no-nuclear proposals, and is still bullish on the uranium sector forthe long term.

“This is a poor political move … which will make them less competitivein the world in 10 years because their costs of generating power,electricity and business costs will be higher,” said Mr. Lauzon, whoruns a mutual fund largely focused on uranium. “I am skeptical that itwill actually come to fruition.”

Raymond James analyst Bart Jaworski said it will be tough for uraniumstocks to move higher this year, but suggests the outlook will improvein 2012.

By then the situation at Japan’s Fukushima nuclear plant, which has beencrippled by the earthquake, should be “under control and we [will beable to] see past the crisis,” Mr. Jaworski said.

New Reactors

Utilities, which have slowed uranium purchases by using up inventory,are expected to ramp up buying again, while Kazakhstan, the world’sbiggest uranium producers, is expected to have flat production goingforward, Mr. Jaworski added. “That is going to be huge plus [for uraniumprices].”

He doubts that Japan will close its reactors because the cost of usingalternative energy sources could top $37-billion (U.S.) a year. That’s ahefty price to pay given the country’s high debt load, he said.

Saudi Arabia is looking to build 16 reactors by 2030 with the first twointended to be active by 2020, Mr. Jaworski said. “If built, SaudiArabia’s proposed units would more than offset last month’s Germanphase-out decision.”

Uranium prices will “probably stay bouncing in that $50- to $60-a-poundrange for the remainder of the year, and it’s looking like it will becloser to $50,” while the price is expected to rise to $70 by 2015, hesaid.

He likes Hathor Exploration Ltd. (HAT-T2.60-0.04-1.52%),an advanced uranium exploration play in the Athabasca Basin and his“highest-conviction name.” He also recommends uranium producer Cameco Corp. (CCO-T24.230.100.41%)“We see that as the safest play,” he said.