Sunday, July 15, 2012

7/15/12: Interest in Rare Earths Returns => REE Has Big Move Potential



Pay Attention Here!  REE Has Big Move Potential.

Molycorp (MCP)
  

Rare Element Resources (REE)
  

PRELIMINARY NOTES

#1 Just last week (7/11/12), The Fly on the Wall reported, “China, the world's biggest producer of rare earth metals, is curbing exports to redress environmental damage done by decades of mining. “

#2 Earlier this month (7/6/12), Avi Salzman of Barron’s interviewed Anthony Young, rare earth analyst with Dahlman Rose.  Please reference the excerpt below.

But there are opportunities in two other U.S. stocks in the sector, Molycorp (MCP) and Rare Element Resources (REE) Young argues.

“We are narrowing our focus to the two companies that we believe have the highest likelihood of completing their projects and generating cash flows in the current market environment, Molycorp and Rare Element Resources.  The inherent values that we calculate for Avalon Rare Metals and Hudson Resources, through our NAV analysis, point toward higher shares prices, but until rare earth prices stabilize, we believe that it will be extremely difficult for these development companies to realize these calculated values.”

#3 In late June (6/21/12) Tom Aspray of Forbes looked at the well-known rare earth plays.  An excerpt of his findings is provided below.

I favor Rare Element Resources Ltd. (REE) above the others, followed then by Molycorp (MCP), and would avoid Avalon Rare Metals (AVL) for now.

How to Profit: For Molycorp Inc. (MCP), go 50% long at $21.44 and 50% long at $20.66 with a stop at $19.58 (risk of approx. 7%). Cancel the order if $24.30 is hit first.

For Rare Element Resources Ltd. (REE), go 50% long at $4.54 and 50% long at $4.14 with a stop at $3.92 (risk of approx. 9.7%). Cancel the order if $6.30 is hit first.

HALL’S TAKE
At their current prices, I think both MCP and REE will perform well in the back half of the year.  Like Mr. Aspray, supra, I tend to favor REE - over MCP. 

MCP – At this time, I believe MCP may have limited upside potential.  In the coming weeks and months, the stock could potentially find some resistance at or near the $25 mark.  For this reason, my 2012 target is set conservatively at $25.  Potential gain:  +27%

REE – Right now, shares of MCP trade at a market value nearly 8X that of REE, which trades with a market cap of approximately $212 million.  For this reason and others, I believe that REE has greater upside potential, making it the better bet of the two.  My 2012 target for REE is set at/near $10.  Potential gain:  +109%
  
Recommendations – You should always invest in the stocks that you’re most comfortable.  While I think both stocks will work in the coming weeks and months, I prefer REE over MCP.  Investors, who are interested in playing rare earths, may want to consider initiating or adding to existing positions in REE now while shares are still trading under $5.00.  Honestly, I’m not sure that they’ll stay at this level too much longer.

Well, that’s just my take.  I always welcome yours.

I own various positions in REE.

No comments:

Post a Comment