Waiting for the Earth to Move

11/30/2009 3:56 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Lynas (OTC: LYSCY) isn’t set to produce revenues from its rare earth mine at Mount Weld in Western Australia and from its advanced materials plant in Malaysia until the fiscal year that ends in June 2011. 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 2 and at $42.55 on September 23—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.

Full disclosure: I will sell my shares of Lynas out of my personal portfolio three days after this column is posted.

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