With jobless claims finally coming in below 400,000 for the first time in a while, investors are starting to breathe a sigh of relief. Stocks surged in Thursday trading on this news while good earnings from Cisco the day before also helped to boost market sentiment and send most shares roaring higher on the day. Nevertheless, stocks remain very depressed when comparing prices to any period longer than one day, suggesting that the economic outlook still remains shaky for a variety of industries. While earnings season may be pretty much over, a few stragglers still are due to give their reports, highlighting the performance of some small corners of the economy. One such sector that is always volatile and could see even more shifts in the coming days is the rare earth metal segment, thanks to a key earnings report from miner Molycorp (MCP).
Molycorp, the Colorado-based mining firm best known for possessing one of the few North American rare earth metal deposits, is still a relatively new company having formed in 2008 in order to buy a mine from oil giant Chevron. The mine looks to produce a wealth of rare-earth metals and could help to alleviate supply concentration issues; currently China controls about 95% of global supplies of these crucial goods. This has put many Western tech companies on notice and firms such as Molycorp have stepped in to help meet this demand. The firm was producing a loss for investors but the most recent quarterly report, which came out yesterday, suggests that events have turned around for the company to say the least [11 Rapid Fire ETF Ideas For 2011].
Despite the economic malaise, MCP reported a profit of 52 cents a share for the most recent quarter, a huge jump from the year ago period in which the firm saw a loss of 47 cents a share. Furthermore, the earnings greatly exceeded expectations as analysts were looking for earnings of 40 cents a share in comparison. It should also be noted that MCP, despite beating estimates by 12 cents a share, only beat revenues by a few hundred thousand dollars, suggesting that prices for its key products have surged or extraction of the metals has not been that cost-intensive. In fact, the company’s average realized sales price in the second quarter of 2011 rose 91% when compared to the year ago period. Even more encouraging is the output that the company saw for rare-earth oxide products; the main mine sold 19% more than last quarter and more than 300% more than the year ago period. Thanks to this bullish report as well as a strong outlook for the rest of the year, shares of this up and coming firm surged by more than 7% in after-hours trading, which is on top of a 5% gain in regular market hours before the report was issued [Will Toyota's Plans Sink Rare Earth Metal ETFs?].
Due to this key earnings report, as well as the general market volatility, investors should look for the Market Vectors Rare Earth/Strategic Metals ETF (REMX) to be in focus throughout today’s trading session. REMX tracks the Market Vectors Rare Earth/Strategic Metals Index which is a rules based, modified capitalization weighted, float adjusted index intended to give investors a means of tracking the overall performance of publicly traded companies primarily engaged in a variety of activities that are related to the mining, refining and manufacturing of rare earth/strategic metals. Molycorp makes up the third biggest holding of the fund at just under 8% of total assets, just barely trailing Lynas Corp and Iluka Resources. However, MCP is the biggest holding that is traded in the U.S. and as such, it may have an outsized impact on the fund’s outlook and performance, especially for North American investors.
REMX has been severely beaten down by the market sell-off in the past few days as the fund has lost close to 21% in the past two weeks alone. However, yesterday the Van Eck product had a gain of 5.3% which obviously helped to eat into this terrible stretch of losses. Given the solid performance of MCP after the bell and the robust outlook given by the firm’s CEO for the rest of the year, investors should look for REMX to open Friday trading sharply higher, potentially allowing the fund to claw closer back to break even for the year on what has been an extremely volatile week in global markets [see Strategic Metal ETFs Head-To-Head: REMX vs. LIT].
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Disclosure: No positions at time of writing.