Why Molycorp's Shares Plunged Today

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 Molycorp (NYSE: MCP  ) dropped another 20% today after announcing a share offering and cost overruns at its only mine.

So what: The company will sell $200 million of stock, or up to $230 million if underwriters exercise an overallotment option, further diluting shareholders that were diluted in January of this year. The Mountain Pass project is already $100 million over budget and with prices and demand weaker than expected management doesn't think it has enough cash to complete the project and run operations.

Now what: This has been a long-running story for Molycorp and the whole rare earth industry over the past two years. Prices are plummeting as supply hits the market, which cuts expected returns and leaves the very viability of Molycorp in question. I warned that the company faces an uphill climb late last week and many of my fears came true during this announcement today. I don't expect a good earnings report and until Molycorp can prove the ability to turn a profit I'd stay far away from this stock.

Make safer bets on growth stocks
Rather than betting on a struggling company like Molycorp, investors should stick to high quality companies with improving earnings. The Motley Fool's chief investment officer has selected his No. 1 stock for this year. Find out which stock it is in the special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


Read/Post Comments (0) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2683026, ~/Articles/ArticleHandler.aspx, 11/28/2014 12:12:33 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement