5 Mid Cap Gainers From Monday and What to Expect Now

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Includes: CE, GLNG, MCPIQ, RES, WAB
by: Rash Menaria

The following is a list of five major mid cap gainers from Monday:

Company

Symbol

% Gain

MolyCorp

MCP

12.08

Golar LNG

GLNG

8.77

RPC Inc

RES

4.43

Westinghouse Air Brake

WAB

4.07

Celanese Corporation

CE

3.26

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Here are some specifics about these stocks and what to expect from them going forward:

MolyCorp (MCP), a development stage company, focused on the production and sale of rare earth oxides, gained over 12% in yesterday’s trade on the news of acquisition of AS SIMLET for $89 million. AS Simlet is a European rare earth oxides processor and this acquisition would nearly double the capacity of MCP in the short term with minimal capex. The management of MCP retained 550 employees and the MD of the AS Simlet. The company is expected to benefit from the deal in more than one way. This acquisition would provide a foothold in Europe, add to the spot price leverage of the company and is a good fit for the existing business model of MCP.

The management informed that AS Simlet has minimal debt on books and has built up inventories in late 2010 before the prices of rare metals spiked. The stock price of MCP has been on rise since recent surge in rare metal prices. We find the stock price has further room to gain as investors factor in the spike in rare earth metal prices and the recent acquisition.

Golar LNG (NASDAQ:GLNG), a mid-stream LNG company, primarily in the transportation, regasification, and liquefaction of LNG, gained close to 9% in yesterday’s trade. The company recently announced spinning off 4 ships into a Master Liability Partnership, named Golar LNG Partners (NASDAQ:GMLP), and filed for the IPO of GMLP with NASDAQ. The planned restructuring will lead to a higher dividend pay-out (LLP avoid double taxation) and the IPO proceeds may be used for acquisitions and/or expansion. Also, the listing of subsidiary provides transparency to the valuations and helps in deriving most appropriate sum of the parts valuation for GLNG.

LNG prices are expected to remain high in the near term on account of higher demand from the Japanese markets and this can re-activate the idle capacity of the company. The stock looks attractive at ~17x 2012e earnings, and can continue to outperform..

RPC Inc (NYSE:RES), a company providing pressure pumping, rental tools and coiled tubing to natural gas and oil producers, rose close to 5% in yesterday’s trade. The company is poised to benefit from higher energy demand and a consequent increase in demand for its products. The number of rigs drilling for oil in US is at the highest level since 1980 and is expected to remain higher as long as crude prices remain high. Also, shale drilling activities are expected to increase the demand for coiled tubing and down hole tools.

The earning power of the company has improved significantly due to transition to horizontal drilling in the last few years. The company plans to expand capacity ahead of its competitors and stands to gain market share on prompt delivery systems. The stock is trading at ~5.5x EV/EBIDTA for 2012 and is expected to deliver decent returns from current levels.

Westinghouse Air Brake Technology (NYSE:WAB), a company doing business as Wabtec Corporation, provides technology-based equipment and services for the rail industry, gained over 4% in trade on continued buying interest after its recent Q1FY11 preannouncement positively surprised the street. The management informed that the performance of Q1 was largely driven by stronger than anticipated demand for freight cars.

For full fiscal 2011 guidance was raised on account of recent order bookings. The stock is trading at ~22x FY11 earnings and ~11x forward EV/EBIDTA, which are on the higher side of the historical average trading range. The stock seems to have already priced in most of the positives at current levels and hence we remain neutral on the stock.

Celanese Corporation (NYSE:CE), a technology and specialty materials company, gained over 3% in trade on continued value buying by investors. The stock is trading at a forward P/E of ~10x which is still at a discount to the industry average. The company is expected to achieve an EPS CAGR of ~20% in the next 3 years, the highest amongst the peers. The company is operating at near 100% capacity and might continue to benefit from strong Asian demands (Asia is 39% of company sales). The stock is amongst the top mid cap buy list of Citi Research with a price target of $53. We believe it is likely to continue its outperformance going forward.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.