Molycorp Shares Got Crushed: 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 earth specialist Molycorp (NYS: MCP) were getting drilled by investors, falling as much as 21% in intraday trading after the stock was downgraded by a Wall Street analyst.

So what:JPMorgan analyst Michael Gambardella provided the hammer-chop to Molycorp's dome by downgrading the stock from overweight to neutral. While that may not sound awful by itself, Gambardella also slashed his target price on the stock from $105 to $66 and cut his annual profit estimates for the company from $2.44 to $1.75 per share. The action was driven by Gambardella's view that there had been speculation in the prices for rare earth metals and now prices may continue to weaken.

Now what: Obviously, this isn't a positive view if you're a Molycorp bull. To be sure, I'm not in that camp and have found it hard to get excited at all about the stock through its massive run-up over the past couple of years. However, it is important to keep in mind that this is the view of just one Wall Street analyst. Molycorp fans would be wise to pay heed to Gambardella's warning, but it's also possible that he's mistaken about the direction of rare earth metal prices. Knee-jerk reactions are the enemy of long-term investors.

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