Rugged Outlook For Rare Earth Miner, Look Elsewhere For Short-Term Plays

Due to an indefinite extension of the Fed’s QE program, many mining stocks have been doing quite well as of late. Securities in segments like gold and silver have seen a bit of a bump in recent weeks, while some industrial metal names have also seen better trading.

Unfortunately, this trend hasn’t extended to every company in the sector, as a few have seen pretty poor trading, despite the overall neutral-to-positive trend in the space. In particular, Molycorp has been having both a bad short term, and a pretty terrible 2013 too.

MCP is a mining company based in Colorado that focuses on the extraction of a variety of rare earth minerals. This includes a variety of elements—such as lanthanum, neodymium and yttrium to name a few—that are used in high tech applications such as electronics, defense systems and automobiles.

Yet despite the relatively low amount of these minerals on the market and the high demand for many of the end products, MCP has seen sluggish trading as of late. The stock has actually fallen by more than 20% over the past month, while it has lost more than half of its value so far in 2013. Clearly, MCP hasn’t been able to escape its recent tailspin, but is there hope for the future?

If you look at the recent trend on the earnings estimate front, then it is pretty reasonable to assume that MCP still has plenty of room to run lower. Not a single estimate has moved higher in the past sixty days, while investors have seen a host of analysts revise their earnings expectations lower for MCP lately.

This has actually pushed the consensus estimate for MCP earnings significantly lower in recent days, keeping the company at a huge loss for the current year. Estimates have moved from a loss of 90 cents a share 90 days ago (for the current year) to a loss of $1.22 a share right now.

Even more troubling is the 2014 forecast for Molycorp, which was showing a profit of 20 cents a share as recently as two month ago. Now though, the stock is expected to lose 14 cents a share, suggesting a drastic reversal in the fortunes for this company’s short and long-term prospects.

If that wasn’t enough, MCP is also in terrible company from an industry rank perspective. At time of writing, the industry was in the bottom five out of more than 260 industries.

Thanks to this horrendous list of factors on the earnings front, MCP has earned itself a Zacks Rank #5 (Strong Sell). MCP has fallen to this level from a Rank of 3 just a week ago, so we could see further losses in this embattled miner in the weeks ahead, and especially at its upcoming earnings report.

MCP data by YCharts

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The broad materials industry still isn’t that great from a Zacks Industry Rank perspective. However, there are a few companies that appear to be well positioned.

In the steel space, investors may want to consider either Alderon Iron (AXX) or Cliffs Natural Resources , both of which have Zacks Ranks of 2 right now, a step up from their #3 Ranks a week ago. Meanwhile in the precious metal space, Silvercrest Mining (SVLC) has earned itself a top rank in the silver world, while Franco Nevada (FNV) is a top ranked pick in the gold market.

Any of these companies appear to be better positioned than the struggling MCP, and they have seen positive estimate revisions lately too. As a result, investors might want to stay away from Molycorp and focus on other segments of the industry for the time being.

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Rugged Outlook For Rare Earth Miner, Look Elsewhere For Short-Term Plays