This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Graphite: Next Play in China

Rick Pearson is a Beijing-based private investor focusing on U.S.-listed China small-cap stocks. He is a contributing writer to TheStreet whose views on these stocks are independent of TheStreet's news coverage.

BEIJING ( TheStreet ) -- Rare earth elements have gone from being an obscure unknown topic to front page news in a very short period of time. There is now an increasing awareness of the fact that China, specifically its Inner Mongolia Autonomous Region, controls roughly 90-99% of the current global supply of certain rare earth elements. China has recently enacted several new policies to increase export taxes and decrease export supply of these rare earth elements, causing shares of many companies who have any connection to rare earths production to soar.

Molycorp (MCP - Get Report) went public in July 2010 in an IPO priced at $14 (below its expected range of $15-$17) and then subsequently traded down to as low as $12.10. The latest announcements of export curtailments by China have driven to stock as high as $62.80 -- an increase of 420% in only six months.

Shares of Rare Earth Element Resources (REE) traded as low as $2.79 in August 2010 and subsequently rose as high as $17.92 in December -- a return of 530% in six months. It should be noted that both of these companies are in the exploration stage with respect to rare earths and neither one of them is yet profitable, making these investments highly speculative. Both of the shares are beginning to sag from their 52-week highs.

One stock, which is actually profitable, that has also soared on the back of the Chinese announcements is Inner Mongolia-based Shenzhou Mining (SHZ - Get Report). During the entire month of July, this previously unknown stock traded a total of 146,000 shares at an average closing price of 77 cents. After several gaps up throughout the fourth quarter of 2010, the stock was soon trading in the $4 to $5 range and I viewed it as overpriced based on hype.

Then on Dec. 29, in what is normally quiet trading between Christmas and New Year's, the stock shot up as much as 75% in one day on more than 33 million shares volume. To put that in perspective, the stock traded 226 times more in one day than it did in all of July and at a price which was more than 1,000% higher. The stock currently trades in the $8 to $9 range.

1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
SYM TRADE IT LAST %CHG
SHZ $0.10 0.00%
CHGI $0.05 0.00%
MCP $0.95 3.30%
REE $0.73 0.00%
AAPL $134.57 1.40%

Markets

DOW 18,037.97 -42.17 -0.23%
S&P 500 2,108.92 -8.77 -0.41%
NASDAQ 5,060.2460 -31.8390 -0.63%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs