Rare earth stocks: Buy, sell or hold?
A recent article noted by the Critical Metals Report of an article by Carl Delfeld of ETF Daily News (dot com) seems to have laid it all out as far the rare earth industry goes. He states, "I believe it's time to take advantage of this sharp pullback and make a value-driven move on rare earth stocks."
At first, my question was: What changed? Then I reread his statement.
Ah, there’s the rub: ascertaining value. For the past year I, too, have received dozens of email offers explaining the value of rare earth stocks, and I should buy now rather than later. Well, good thing I never bought much, because the entire sector tanked.
Frankly, I may nibble at times on stocks with potential, but I more often prefer the stock charts to tell me when to buy. However, in the words of the legendary trader, W.D. Gann, time is more important than price. In this case, though, so is patience.
Truth is, on a fundamental basis I can agree with Mr. Delfeld on the sector; his reasoning makes sense. Then again, it is the same reasoning that all of us read in early 2011. Of course we must be concerned with China's economy, up or down; and the world is using more and more rare earth materials which defines the demand part of the equation. Then again there is the supply part of the equation, whereby China has a lot of leverage over rare earth production and prices; and the future may hold a VAT; yes a value added tax to control production inside China. That information, though, came from Mineweb.
According to Delfeld, China still produces 90% and controls 95% of the export market for the 17 metals considered rare earths.
Recall that China shook the market in late 2010 when it suspended exports to Japan to leverage its negotiating position during a territorial dispute. The tactic not only alarmed the world, but took a shot over America’s bow, which is still ramping up EV acceptance let alone builds. The result was a surge in rare earth metals and stocks throughout the summer of 2011.
Truth is, I still find the auto industry searching for alternatives. For example, the Copper Development Association has been making the rounds at all the engineering and tech shows stating how copper and induction motors are cheaper, and performance meets expectations. Even Tesla and Toyota are working together on alternates to permanent magnet motors.
Like all other major news events, though, the quake died down, and rare earths largely disappeared from headlines. As a result, stock prices tumbled. However, demand did not dissipate. In fact, the industrial uses of these elements increased. However, some now say the high prices during 2011 were exacerbated by a ramp-up of mining activity.