Why Molycorp's Shares Jumped
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 mineral miner Molycorp rose as much as 20% in early trading after Bloomberg put out an article that suggested the company could be a takeover target.
So what: The Bloomberg article (found here) says that since the stock has traded at a discount to book value recently it would make a good target for a big industrial company. The company pointed to Nissan and Siemens as potential buyers.
Now what: Molycorp may be trading at below book value, but that's because the amount of cash the company generates from its assets is deteriorating. The value of rare earth minerals has plummeted since a bubble formed in 2011, and there's simply not the same return from these assets as their once was. I doubt a new buyer would be able to increase return on assets, so why would anyone buy Molycorp when the prices of the minerals are falling like a rock?
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The article Why Molycorp's Shares Jumped originally appeared on Fool.com.Fool contributor Travis Hoium has no positions in the stocks mentioned above. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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