(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
On Tuesday, September 20, a JP Morgan (JPM) analyst slashed his price target on rare earth producer Molycorp (MCP) from $105 to $66. This reduction in upside from 100% to 25% helped plunge MCP to a one-day 22% loss. Only the 2011 lows stopped the stock from dropping any further.
*Chart created using TeleChart
The upshot to this calamity is that instead of a 25% upside potential, now MCP offers intrepid investors an even more attractive 61% gain according to JPM’s own analysis. {snip}…
…I suspect that JP Morgan’s analyst is also reacting to a NY Times article from September 16th titled “China Consolidates Grip on Rare Earths.”…{snip}…Buried at the very bottom of the article is an almost innocuous reference to stockpiling of rare earths in China. {snip}…In an interview with CNBC’s Fast Money in the wake of MCP sell-off, Smith informed the audience that this inventory hit the market in August and has already made its way through the system. Prices dropped during this process but have now stabilized and are beginning to increase again.
{snip}
(This is an excerpt from an article I originally published on Seeking Alpha. Click here to read the entire piece.)
Full disclosure: long MCP (shares, calls, and puts)
Dr. Duru,
How do you interpret total sellof by the management and then the CEO buyback? Would you interpret the breakoff of negotiation of investment by Sumitomo to be the management not wanting their books open for scrutiny?
The sell-off by management I understand. They have large holdings and it makes sense to lock in some profits. The subsequent purchase by the CEO at even higher prices simply makes no sense at all to me…unless he was fulfilling some as yet unknown obligation or that was the one small window he had to make such a purchase ahead of something really big. Hard to say!
I think the break-off of negotiations is a combination of MCP not wanting to give away the store for too little, and Sumitomo getting more confident they can do better at some later time. Time will tell.