This $30 Stock Could Pop On Buyout Rumors And Announcements

Apr.23.12 | About: Molycorp, Inc. (MCPIQ)

Molycorp (MCP) investors have had a roller coaster ride over the last year on the boom and bust of rare earth metal prices. The stock is down more than 50% since summer. However, the stock looks like it could pop due to some recent announcements and persistent buyout rumors.

Key recent events and rumors around Molycorp

  • The company is the constant target of rumors of a buyout by a larger player. That activity has picked up recently. The latest rumor has Rio Tinto (NYSE:RIO) making a play.
  • This follows a story earlier this month in Bloomberg that stated Molycorp could be worth $60 in a buyout.
  • The company said a recent analysis showed that there are 36% more proven and probable reserves than previously anticipated at its Mountain Pass property in early April.
  • The company is acquiring Neo Materials for $1.3B. The transaction will give Molycorp a much larger exposure to China, which consumes 70% of rare earth output.

Molycorp - "Molycorp, Inc., a development stage company, engages in the production and sale of rare earth oxides in the western hemisphere. Its rare earth products include oxides, metals, alloys, and magnets for various inputs in existing and emerging applications comprising clean energy technologies, multiple high-tech uses, defense applications, and water treatment technology". (Business Description from Yahoo Finance)

4 additional reasons Molycorp is a solid buy at $30:

  • Buoyed by the acquisition of Neo Materials, revenue is projected to grow substantially. Analysts have just under 40% sales growth pegged for FY2012 and 80% growth expected in FY2013.
  • The stock has a forward PE of under 8 which is a 70% discount to its historical average.
  • The company has had net insider buying in its shares since August. It also has a solid balance sheet with over $200mm in net cash.
  • Molycorp has one of the few non-Chinese owned rare earth mines in production stage. Given its $2.5B market capitalization and high growth potential; MCP makes an attractive target if RIO does not buy the firm at this time.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCP over the next 72 hours.