Another reason for a downturn in the price of uranium is the lack of hedge funds in the market. At one point, hedge fund buying accounted for up to 25 percent of ownership. Now, they're looking elsewhere.

Naturally, lower production coupled with lower prices does not translate into increased earnings. While Cameco's second-quarter profit was higher than expected, that was down to stronger results from its electricity business. The story is similar for Rio Tinto, where other divisions offset the weak uranium unit results. In that sense, firms' current valuations may seem too high in light of the actual market for yellowcake.

Yet while the short-term outlook for uranium might be weak, there are encouraging long-term signs. China has stockpiled 8 million pounds' worth of uranium this year; Iran claims that it needs up to 300 kgs of nuclear fuel for the next 18 months to service one of its reactors; Britain's Financial Services Authority (FSA) chief Lord Adair Turner intends to implement a price floor for carbon emissions, while giving a bonus to companies that use nuclear fuel. Perhaps the most exciting uranium story is in India, where there is a relative shortage. The world's second-most-populous country has an immediate shortage of a staggering 100,000 tons of uranium, or nearly half a percent of the world's total supply.

For an investor interested in partaking in the uranium story over the long term, purchasing a basket of small-cap uranium producers may make more sense than buying a nuclear ETF or a large producer, which appear overvalued right now.

Bart Jaworski, an analyst with Raymond James, likes pink-sheet-listed stocks such as Denison Mines (DMLCF.PK), Hathor Exploration (HTHXF.PK) and Ur-Energy (AMEX: URG).

Other small companies in the uranium space include Uranium Resources (Nasdaq: URRE) and Uranerz Energy (AMEX: URZ). Beware however, that most of these companies are explorers rather than producers, and as a result, there are no guarantees that they will eventually profit from a price increase of yellowcake.

Whatever your approach, it is clear that mining for value in the uranium space is not as simple as for other commodity producers right now. Before going shopping, beware of the sector's vulnerability to dramatic supply/demand moves and the precarious valuations of its producers. Uranium might be a big story, but it might be best to wait for a bit before diving in.

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