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Rare Earth Stocks — An Uncommonly Good Buy?

China's meddling makes rare earths a risky play

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What Rare Earth Stocks to Buy

Rare earths are used in aerospace and technology applications, from semiconductors to nuclear batteries to lasers, so they are crucial to a high-tech economy.

There are serious supply concerns because rare earths are so … well, rare. As a result, Western companies are trying to lock up far-flung rare earth suppliers. Reports continue to indicate that China is consolidating its control over rare earths — not building bridges with companies — and that means Lynas could feel the pressure from China in the Asia/Pacific arena.

Tread lightly with Lynas as a result.

As for Avalon and Rare Element Resources, the performance in the past 10 months is enough to cause serious concern. AVL stock is off 50% since Jan. 1, 2001, and REE is down 66% year to date. Supplies might not be abundant, but consumer spending has seriously slowed down demand, and these companies have been suffering. Both rare earth stocks have lost about 50% in the past three months alone.

That leaves Molycorp. MCP stock has performed the best out of all of these investments that play rare earths. But it still is down 27% in 2011, compared with about a 2% loss for the broader stock market.

Perhaps the only glimmer of hope is that Molycorp stock was hanging tough until September, when an analyst slashed his price target from $105 to just $66. He cited the fact that rare earth prices have fallen substantially and demand outside China continues to decline.

MCP stock recently plunged 30% in about six weeks down to the middle $30 range — significantly below the lowered target of $66, so perhaps Molycorp could be oversold.

Article printed from InvestorPlace Media,

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