One of 2012's Worst Performers, Molycorp, Hit by Downgrade
Shares of Molycorp (NYSE: MCP) continued to move lower on Tuesday, trading down over four percent. Analysts at Morgan Stanley opted to downgrade the stock to Equal-weight, noting that the ongoing SEC investigation was an overhang on the price of shares.
Even without Morgan Stanley's downgrade, Molycorp's performance has been absolutely abysmal in 2012. Year-to-date, shares are down well over 70 percent. That's even worse when compared to the broader markets, as the S&P 500 has rallied over 10 percent this year.
Shares of Molycorp were trading near $70 in May of 2011. At that point, industrial commodities -- and related mining companies -- were enjoying solid runs. There was also speculation about the availability of so-called rare earths.
Molycorp is engaged in the mining of rare earth elements. They include metals like Scandium and Yttrium -- commodities most investors have never even heard of. Regardless, rare earths are relevant as they are used in the construction of many high-tech gadgets; LCD TVs and hybrid cars for example.
The majority of the world's known rare earth deposits happen to be located in Northern China, and there was rampant speculation that the Chinese could restrict the exploration of these metals to drive up the price.
Unfortunately for Molycorp bulls, that scenario has failed to materialize, and shares are currently trading below $7 per share.
In the shorter-term, however, there is the issue of an SEC investigation. Last week, Molycorp, in a press release, stated that the SEC had begun an investigation of the company's public disclosures. Molycorp stated that it could not predict the “length, scope, or results of the matter or the impact, if any, on the Company's results of operations.”
In its note, Morgan Stanley stated that it no view of the eventual outcome. The analysts maintained a somewhat positive stance, noting a recent earnings beat and an attractive risk-reward profile, but predicted that investors would be sidelined due to the wide range of possible outcomes.
In a note released Monday, PiperJaffray was also cautious on Molycorp, reiterating its Neutral rating. PiperJaffray also reduced its price target on Molycorp to $8. Like Morgan Stanley, the analysts at PiperJaffray identified the SEC investigation as an overhang.
With the loss on Tuesday, Molycorp has firmly descended into the realm of a small-cap stock.
Tuesday afternoon, shares of Molycorp traded near $6.87, down over four percent.
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