Molycorp Shares Popped: What You Need to Know


Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes--just in case they're material to our investing thesis.

What: Shares of rare-earths miner Molycorp (NYS: MCP) climbed as high 17% on Friday after investors applauded its quarterly results and new supply agreement.

So what: Plenty have feared that soaring rare-earth prices are in dangerous bubble territory, but Molycorp's second-quarter profit beat -- $0.52 per share versus the Wall Street consensus of $0.40 -- suggest that the trend isn't turning anytime soon. In fact, the company also announced a new supply agreement with Hitachi Metals, further reinforcing those strong demand tailwinds in the minds of investors.

Now what: Molycorp remains too speculative for most Fools. While CEO Mark Smith noted that the global demand for rare-earths continues to be "very high, and supply outside China continues to be tight," Molycorp's valuation seems to already have plenty of optimism baked into it. Given Molycorp's price-to-sales ratio of nearly 80, a decent return seems questionable even if rare-earths prices remain strong.

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At the time thisarticle was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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