Is Small Cap Nuclear Stock USEC Inc (USU) Radioactive for Investors? URRE, DNN, URG & URZ

Small cap nuclear fuel stock USEC Inc (NYSE: USU) is up some 300% this week – meaning its worth taking a closer look at the company along with the performance potential uranium or nuclear stock peers Uranium Resources, Inc (NASDAQ: URRE), Denison Mines Corp (NYSEMKT: DNN), Ur-Energy Inc (NYSEMKT: URG) and Uranerz Energy Corp (NYSEMKT: URZ).

What is USEC Inc?

Small cap USEC Inc is a leading supplier of enriched uranium fuel for commercial nuclear power plants. Specifically, USEC supplies low enriched uranium, a key component of the fuel used by nuclear power plants to generate electricity. However, USEC Inc's business is in a state of significant transition as it seeks to re-position its enrichment business for long term success as the company historically produced or acquired low enriched uranium from two principal sources: US enrichment facilities and uranium downblended from nuclear weapons. USEC Inc will be a significantly smaller company as it transitions from having two sources of supply to making sales from its existing inventory, from purchases of low enriched uranium from Russia and from other potential sources of supply.

As for potential performance peers in the uranium or nuclear industries, Uranium Resources, Inc is in the business of acquiring, exploring, developing and mining uranium properties, using the in-situ recovery (ISR) or solution mining process; Denison Mines Corp is involved in uranium exploration, development, mining and milling with uranium mining projects in both the United States and Canada and development projects in Canada, the United States, Zambia and Mongolia; Ur-Energy Inc is involved in the identification, acquisition, evaluation, exploration and development of uranium mineral properties located primarily in Canada and the United States; and Uranerz Energy Corp is a uranium company focused on ISR uranium production and the development of its properties in Wyoming's Powder River Basin area into commercial ISR uranium mines.

What You Need to Know or Be Warned About USEC Inc

On March 5th, USEC Inc announced that it had entered into a plan support agreement with each of Babcock & Wilcox Investment Company and Toshiba Corporation and Toshiba America Nuclear Energy Company as holders of the Company's Series B-1 12.75% convertible preferred stock regarding a voluntary Chapter 11 pre-arranged plan of reorganization of the Company. In the bankruptcy documents, USEC listed assets of $70 million and liabilities of $1.07 billion at the end of last year. The filing contained the following statement:

The Company urges that caution be exercised with respect to existing and future investments in its securities as the Plan, if approved, by the Bankruptcy Court and implemented in accordance with its terms, will substantially change the Company's capital structure.

The filing was also accompanied by a press release with the following summary:

Files voluntary, prearranged plan of reorganization under Chapter 11.

Plan supported by majority of noteholders and by preferred investors, Toshiba and B&W.

Daily operations continue unaffected.

Filing relates only to parent company.

USEC to fully meet obligations to customers and suppliers as operations continue.

USEC terminates Tax Benefit Preservation Plan.

In mid May, USEC Inc reported a 54% first quarter revenue fall to $148.6 million and a net loss of $50.8 million verses a net loss of $2.0 million due to a reduction in separative work unit (SWU) revenue compared to the same period in 2013 following the cessation of enrichment at the Paducah Gaseous Diffusion Plant (GDP) in the second quarter of 2013. The earnings report also noted:

Given the uncertainties of these transitions and the uncertain and incremental nature of federal funding for work under the ACTDO Agreement, our guidance for USEC financial results and metrics for 2014 will be limited.

This week though, USEC Inc apparently began soaring on news about new $2.5 million in funding from the US Department of Energy with TheStreet noting:

The funding arrives after an amendment to an agreement with UT-Battelle, operator of Oak Ridge National Laboratory, for more research on American Centrifuge technology. USEC first entered into the fixed price contract for approximately $33.7 million, paid out at $6.7 million per month from May 1 to Sept. 30.

However, a new article on Seeking Alpha has concluded:

Post reorganization, with convertible note holders taking the lion's share of value, equity holders will be left with less than 5% of the current trading value of the stock.

Share Performance: USEC Inc vs URRE, DNN, URG & URZ

On Wednesday, small cap USEC Inc surged 49.39% to $11.04 (USU has a 52 week trading range of $2.60 to $29.12 a share) for a market cap of $54.60 million plus the stock is up 86.8% since the start of the year, up 50.6% over the past year and down 91.8% over the past five years. Here is a look at the long term performance of USEC Inc verses that of Uranium Resources, Inc, Denison Mines Corp, Ur-Energy Inc and Uranerz Energy Corp:

As you can see from the above chart, USEC Inc has performed much worst than the other four uranium or nuclear stocks – not that they have been giving investors a decent performance.

Finally, here is a look at the latest technical charts for all five uranium or nuclear stocks:

The Bottom Line. Regardless of whether USEC Inc's business has merits, the only people who should be investing in or trading a stock that's filed for Chapter 11 are speculators who are also bottom fishers.