Waiting for the Earth to move
After watching Lynas gain 24%, Jim plans to sell it out of his portfolio.
And even then, the Wall Street consensus calls for revenue of just $13.3 million (US) and a loss of about 90 cents a share.
Because the company still hasn't started production, the lack of basic information -- what will it cost to mine, ship and then process rare earths? -- makes it very difficult to put any kind of price tag on the stock that's based on fundamentals. In their absence, I have to pay more attention to market sentiment and momentum.
Right now, it looks as if Australian stocks are moving towards being overbought in the short-term. Risk appetite, judging from flagging momentum, is waning. And leadership seems to be moving from natural resource and other cyclical sectors to consumer goods and health care.
I think Lynas has an incredible long-term story given the rising demand for rare earth minerals in every green technology from hybrid cars to wind turbines, and given the scarcity of rare earth producers outside of China. (For more on the long-term rare earth story, see this post.)
But given the demonstrated volatility of this stock -- the ADR traded at $22.50 on November 2nd and at $42.55 on September 23rd -- I'd rather cut my risk now and look to repurchase on a dip.
The stock has repeatedly touched my target price of $29 a share in recent days. (It traded at around $27.50 Monday.)
With this post, I'm selling Lynas with a gain of 24% since I added it to Jubak's Picks on November 6, 2009.
Jim Jubak plans to sell his shares of Lynas out of his personal portfolio three days after this column is posted.
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Serious issues like drought and the deterioration of the developed world spell opportunity for this industry leader.
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