About 6 weeks ago, I wrote about the overvaluation in the rare earth stocks in this article. Many disagreed with the prediction that this sector was at or near a top, when I wrote about these stocks. I received a number of nasty comments, probably from long investors losing money on these stocks. Some were upset that I included PE ratio info, but that is something I do for most stocks. I included China Shen Zhou Mining & Resources (SHZ) in the articles because it rode the rare earth bubble higher, it was clearly overvalued, and fell with all of these stocks as well. Some misdirected people implied I was putting SHZ in direct comparison to companies like Molycorp (MCP), which is clearly not the case.
The whole sector has now imploded, and the charts for these stocks are a mess. I continue to believe that this is a high risk sector and that many investors don't really know what they are investing in. I would continue to avoid this sector, as these stocks have weak fundamentals and technicals as well. Some of these stocks are close to their 200 day moving average, and that might provide some support. If these stocks break below that, then there is a long way down-- especially when you consider how high these stocks are from their 52 week lows.
Molycorp, Inc. shares are trading around $60.63. MCP was founded in 2008, and is based in Colorado. The shares have traded in a range between $12.10 to $79.16 in the past 52 weeks. The 50 day moving average is $64.05. Earnings estimates for MCP are just 38 cents for 2011, and $2.45 per share in 2012, so the current PE ratio is extremely high and the forward PE ratio on 2012 earnings is about 30. MCP insiders have cashed in millions of dollars worth of stock.
Avalon Rare Metals (AVL) shares are trading at $7.46. AVL is based in Canada. The shares have traded in a range between $1.09 to $10.11 in the past 52 weeks. The 50 day moving average is $8.23 and the 200 day moving average is $5.63. Earnings estimates for AVL are unavailable, and the company has been losing money. You can read the company's latest quarterly report and see it reports very minimal revenues and has lost substantial sums.
The company describes itself as being "development stage" and says "its principal source of capital is from the issuance of common shares." You can read that in the most recent report here.
Rare Element Resources, Ltd. (REE) shares are trading at $11.72. REE is based in Canada. The shares have traded in a range between $1.15 to $17.92 in the past 52 weeks. The 50 day moving average is $13.19 and the 200 day moving average is $10.84. Earnings estimates for REE are not available. This company has been losing money, and you can read its most recent quarterly report here.
China Shen Zhou Mining and Resources (SHZ) shares are trading at $4.08. SHZ is based in China. The shares have traded in a range between 60 cents to $10.84 in the past 52 weeks. The 50 day moving average is $4.69 and the 200 day moving average is $4. Earnings estimates are unavailable for SHZ. This company has been losing money-- for the first quarter of 2011 the loss was $1.6 million, or $0.06 per diluted and basic share, compared with net loss of $0.8 million, or $0.03 per diluted and basic shares in the 2010 first quarter. You can read the company's latest financial report here. This company stated it was a reverse takeover not long ago, which you can read about here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.