Insider Trading At Molycorp (MCP) Shows There Is Value In Rare Earth Minerals

Other major metal mining companies include BHP Billiton Limited (NYSE:BHP), Vale SA (NYSE:VALE), Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX) and Southern Copper Corp (NYSE:SCCO). BHP is a diversified metals company that trades in the mid range of the industry. BHP also has expected growth that pales in comparison to Molycorp—expected to grow EPS at only 6% compounded annually.  Even so, BHP has been relatively flat year to date and is making efforts to better focus its business for growth, having recently sold off its diamond business.

Vale is much like BHP as a diversified metal mining giant. The Brazil-based mining company pays a much richer dividend than BHP at 6.2%, compared to BHP’s 3.2%. Vale also trades at the cheapest P/E of the five mining stocks listed at 7x earnings.

One big concern for Vale investors though, is the slowing Brazilian economy, which will pressure the company’s bottom line; the miner is expected to see an earnings decline of 20% each year over the next half-decade. Nonetheless, Ken Fisher – billionaire investor and founder of Fisher Asset Management – has been a big fan of Vale and increased his stake over 200% during 3Q (check out Fisher’s new picks).

Freeport is the copper and gold company that trades at 13x trailing earnings, below notable copper competitor Southern Copper at 16x. Driving the future growth of these two companies will be the expected copper shortage on the back of expectations that China doubles its copper consumption over the next few years.

Both Freeport and Southern Copper appear to be solid value and growth plays. Freeport also operates gold mines, which should further boost the miner as gold prices appreciate on the back of global uncertainty and commitments to low rates in the U.S. through 2014. Southern Cooper trades at only a 14x forward P/E—below its 16x trailing P/E—and pays out a dividend yield around 6% (excluding its recent special dividend). Freeport pays a lower dividend yield at only 3.2%, but the copper-gold miner trades at only 8x forward earnings.

We believe that Molycorp is an interesting speculation play that could see an interim boost in share price as rare earth mineral demand increases and prices rise. The catalyst will be a combo of strong earnings growth and potential short coverings.