Shareholders of uranium exploration company Summit Resources Ltd (Australia) (ASX: SMM) have certainly had a great start to the year.
Following the 60% jump in its share price to 64.5 cents yesterday, Summit Resources shares have now provided shareholders with a whopping year-to-date return of 616%.
What caused the incredible rally?
In 2016 uranium was the worst-performing commodity. Due largely to the shutdown of nuclear reactors in Japan, a subsequent oversupply of the metal led to prices to tumble 41% to a 12-year low of US$18 a pound.
But with Japan set to bring a number of its nuclear reactors online this year and major Kazakhstan-based uranium producer Kazatomprom cutting production by 10% in 2017, uranium prices have started to recover.
According to management the uranium spot price was US$26.50 yesterday, approximately 45% higher than its low in mid-December.
Unsurprisingly fellow uranium producers Paladin Energy Ltd (ASX: PDN) and Energy Resources of Australia Limited (ASX: ERA) have also rallied strongly this year. Year-to-date their shares are up 80% and 68%, respectively.
Should you invest?
An investment in Summit Resources is too high risk for my risk profile. Whilst I still think uranium prices could yet go higher, I feel this has been priced into the company’s shares already.
This could put its share price at risk of a severe drop in value should further improvements in uranium prices fail to materialise. I’ll keep a close eye on the company, but I won’t be investing at this point in time.
Instead of an investment in Summit I would invest in this hot dividend stock. Not only does it pay a huge dividend, but I believe its international expansion will help it beat the market over the next few years.
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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.