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Insiders Bought Molycorp, Inc. (MCP), Should You?

 November 26, 2012 07:10 PM
 


In the spirit of Black-Friday doorbusters, iStock's weekly insider and accumulation screens gave us a 2 for 1 special this Cyber-Monday.

Molycorp, Inc. (MCP) managed to find its way on iStock's weekly money flow and insider buying lists. MCP was the 6th most accumulated stock, according to our model, with more than $17 million purchased or 1.7% of the company's market-cap.

Three insiders were busy buying the stock, too. While many were at the local supermarket picking up a 15 pound turkey, cranberry sauce, and apple pie, Executive VP and General Counsel John Ashburn bought 10,000; Charles Henry opened his wallet to stuff another 45,192 shares ($320,697) of Molycorp into his portfolio. To tie things up, Chief Executive Officer Mark Smith purchased 20,000 shares at $6.20.

[Related -Molycorp Inc (MCP): Will Q3 Results Impress Investors?]

Molycorp is a development stage company which engages in the production and sale of rare earth oxides in the western hemisphere. MCP's rare earth products include oxides, metals, alloys, and magnets for various inputs in existing and emerging applications comprising clean energy technologies, multiple high-tech uses, defense applications, and water treatment technology.

Mr. Henry's purchase is something else that is rare and the most intriguing to iStock. Unlike the other two insiders, the director has not bought the stock in the open-market during the last two years.  In fact, his only other open-market transaction was to sell 69,000 shares at $51 in August 2011. Right after his sell, MCP shares steadily declined to last week's low of $6.06. Needless to say, the insider's timing seems to be A Okay.

[Related -Molycorp, Inc. (MCP): Bottom Fishing Insider Buy?]

Although shares jumped from the low $6s following the insider buying news, MCP's stock priced has followed a definite pattern since mid-April. Every single time the rare earth stock reached out and touched its 50-day average, sellers moved in and pushed the price lower. There is still plenty of upside left to continue the current rally as the 50-day mark is $10.30 – 18.67% upside from Monday's close. Investors might consider taking profits at the key technical trend-line until the pattern breaks.

Or, until prices for many primary products start to rise dramatically; the stock price and sales have been hammered thanks to a stalling world economy, especially China, and nose-diving prices for products such as cerium, lanthanum, neodymium and praseodymium. Additionally, swollen inventories resulting from their Molycorp Canada acquisition could continue to harm margins, especially if chemical and oxide prices fall.

Rare earth stocks tend to be tied to the health of the global economy. With Europe double-dipping, the fiscal cliff, and continued slowing in Asia, it could be very difficult for MCP to get beyond its 50-day average for too long. iStock thinks aggressive investors might be wise to wait and see if they can join Molycorp, Inc. (MCP) insiders in the low-to-mid $6 range.

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