- Commodities have taken off, and Harris Kupperman expects the rallies to continue.
- The hedge fund manager said uranium is one of the best investing opportunities he’s ever seen.
- Here’s how Kupperman is playing both uranium and oil as they’re poised to climb higher.
Oil and uranium prices have recently skyrocketed, and hedge fund manager Harris Kupperman believes both commodities will continue to print cash for investors.
Crude oil futures have risen from $67 per barrel in late June to north of $90 today, sending energy stocks soaring since their mid-summer lows. Expectations of the largest oil production cuts since 2007 began to sap supply as renewed economic optimism eased demand concerns.Saudi Arabia and its OPEC allies have refused to increase oil production, much to the chagrin of the United States.
However, Kupperman believes that the uranium rally will be even more significant. The radioactive element jumped from under $50 per pound in mid-March to $60, and the president of Praetorian Capital Management believes it could double or triple from current levels to several hundred dollars per pound.
“There’s a pretty good chance the price gets to a few hundred,” Kupperman said of uranium in a recent Insider interview. “And then, if it gets to a few hundred, you can almost go to any price.” These kinds of things have no bounds.”
What Kupperman considers to be the market’s best-kept secret may not remain so for long.
“The price was slowly rising, but it didn’t really matter until you hit a new multi-year high,” Kupperman said of uranium. “It’s like — yeah, it seems validated now.” As a result, I think it’s really, really interesting. And I believe it has insane upside potential.”
Why are uranium prices about to skyrocket?
Uranium is rarely, if ever, mentioned by mainstream investors, who are more interested in stocks linked to artificial intelligence and quality companies that can withstand a downturn.
Kupperman, a natural contrarian, is all-in on uranium, allocating the maximum amount allowed by his fund’s rules. Last week, in a blog post about the element on Praetorian’s website, the hedge fund manager included a meme that posed a rhetorical question summarizing his point of view: Why do investors have non-uranium positions at all?
“I haven’t seen something as compelling as uranium,” Kupperman said. “When it comes to investing, you can have a thesis and a theory, which is fine. People have opinions about things, but your theory only matters if the price begins to move, which indicates that other people care.”
Kupperman’s uranium thesis is straightforward: Similar to oil, supply is extremely low in comparison to demand and will remain so indefinitely. The difference is that oil output should lag behind global demand of about 100 million barrels per day by a few million barrels, according to Kupperman, who added that the uranium shortfall could be between 20% and 25% of global demand at 50 million pounds per year.
A commodity deficit on that scale would be unprecedented, according to Kupperman. And, while it may seem far-fetched to some, he believes supply-side complications in Kazakhstan and Uzbekistan as a result of the Russia-Ukraine war and other geopolitical tensions will severely impede supply. Increasing uranium production takes years, he added, so resolving the shortage may take years.
Kupperman predicts that utilities and governments will panic about their dwindling uranium inventories and be forced to bid it up at higher prices, fueling a short squeeze-driven surge. The increase in uranium has already been noticeable, but he believes it is just getting started.
“I don’t know what this reminds me of,” Kupperman said of the uranium prospect. “I’ve never seen anything like this before.” It just appears to have the potential to be a massive squeeze.”
How to Profit from the Uranium Boom — and Why Oil Can Run Higher
Kupperman’s uranium thesis is unusual, but his hedge fund’s track record is difficult to dispute. His Praetorian Capital Fund has returned 734.1% after fees since its inception in January 2019.
Unsurprisingly, uranium is the most valuable asset in Kupperman’s fund. He owns physical uranium and invests in it through the Sprott Physical Uranium Trust Fund (SRUUF) and Yellow Cake (YCA.L). Kupperman believes that direct exposure to uranium is preferable to betting on miners.
According to Kupperman, the Praetorian Capital Fund’s second largest holding is oil-related stocks. He prefers offshore drillers such as Valaris (VAL) and Tidewater (TDW) to exploration and production companies because they are less expensive and have greater upside through leverage. Offshore energy firms trade at 1x to 2x expected 2024 cash flow, which he compares to their E&P peers.
“They’re just cheaper, and they’re also a lot less risky in terms of political risks,” Kupperman explained. “There will be no excess profits taxes or any of this nonsense.”
According to the hedge fund manager, the path of least resistance for oil prices remains higher. While the supply shortage is not as severe as that of uranium, Kupperman believes it will continue because oil companies have no incentive to increase supply by investing in fossil fuel infrastructure.
“It looks like the deficits are going to stay with us,” Kupperman said of oil, which has defied market expectations. “As a result, I believe the price will rise.” It’s difficult to say how much higher, but I believe the price will be here or higher.”