Michael Robinson Hits Home Run With Rare Earths

Note from Editor Sara Nunnally: If you remember a while back, I tapped Michael Robinson, editor of American Wealth Underground, for an answer to a Smart Investing Daily reader’s question about rare earths.

Rare earths are a group of specialty metals that are highly desirable for technology such as hybrid batteries and electronics. Take a look back at the original Smart Investing Daily article, “Should You Invest In Rare Earth Metals?“, to read the question and answer.

This is a recurring topic for Michael, and it’s no surprise to me that his recommendations in this sector are doing really well.

That’s why I want to share with you a recent article from his service American Wealth Underground…

Company CEO Predicts Surge on Rare Earth Metals Mania

It was nothing short of rare-earth nirvana on Wall Street yesterday [March 22]. Indeed, several rare-earth stocks were among the biggest gainers amid a buying frenzy that I believe underscores a global mania building for these elements.

Ironically, just last week [March 16] I wrote a passionate letter asking you not to exit any rare-earth stocks you might own. I said then I saw no reason to panic about the nuclear crisis in Japan and how it might affect demand for these critical elements.

I also told you I had no regrets regarding my decision to place [edited for content*] into the portfolio last week. As it turns out, a news item regarding the company’s rosy profit outlook got lost in the media circus about the crippled Japanese reactors.

Of course, I will provide more details on what the company’s CEO had to say. But first I want to give you the lowdown on how well rare earths did yesterday.

All four of the stocks I recommended last May in my special report about the Rare Earth Giants of North America showed impressive gains.

But Rare Element Resources (REE:AMEX) was in a class by itself. The stock of the Vancouver-based company surged about 24%. That made REE the fourth-biggest gainer on the American Stock Exchange and also represented the sixth-biggest increase across all U.S. markets.

The company’s success could have a dramatic impact on the U.S. supply of these compounds critical for high technology and national defense. That’s because the exploration company was formed specifically to develop deposits of rare earths and gold in Wyoming.

You may recall that China has a stranglehold on the rare earth metals market because it controls 97% of all rare earths sold in the world. A southern California mine closed about a decade ago amid strong environmental concerns could reopen by the end of this year but it won’t produce enough materials to satisfy all U.S. needs.

(By the way, I’m contributing to Smart Investing Daily today, but regular editors Sara Nunnally and Jared Levy are always simplifying the market for you with their easy-to-understand articles.)

Remember, in the April issue of this newsletter I called on the White House and Congress to establish a national policy supporting domestic rare-earth production.

I believe Rare Element, based in Canada and exploring in the U.S., could be a boon to this country. The stock is up 360% since I recommended it last May.

Meantime, Avalon Rare Metals (AVL:AMEX) was no slouch, either. It registered the ninth-largest increase on its exchange yesterday, soaring some 13.6%. The stock came in 14th among all U.S. exchanges, and we are now up more than 260% on this position.

Avalon is exploring several tracts based in Canada. That, too, could help the U.S. because any quality deposits in North America reduce our dependence on the Chinese, who are now hoarding their supplies by adopting export restraints.

And let’s not forget Quest Rare Minerals (QRM:TSX.V) or Great Western Minerals (GWG:TSX.V), which also are based in Canada. Quest gained about 6% on the day as Great Western increased by nearly 5%.

At deadline today, Great Western had given us cumulative gains of about 470% and we had gotten profits of about 147% from Quest. Now you know why I said not to sell these stocks while the rest of the market was panicking.

Thus, I think we are in a good position with [edited for content*]. The stock had a huge Japan-related sell-off before the April issue came out, and I think that gave us an excellent buying opportunity.

As it turns out, the company’s CEO recently told Reuters he expects huge price increases and strong profits over at least the next two quarters. A little more than half its sales stem from China and the company also has operations in Japan.

“We’re in an environment where prices are going up daily and sometimes hourly,” [edited for content*] said in a recent conference call with analysts. “In this environment you’ve got to sit back, take a deep breath and just wait for reason to return.”

According to Reuters, [edited for content*] expects the Toronto-based company will introduce its “biggest ever” price increases in June in response to soaring rare-earth costs. He said he doesn’t expect Chinese export quotas to change significantly in the second half of this year.

Indeed, the CEO cites other factors besides Chinese restrictions for the recent rare-earth price surge. Miners are aggressively increasing prices while speculators hoard some elements, [edited for content*] said, adding that producers have slowed down the supply chain in anticipation of still higher prices.

[Edited for content*] recently said 2010 net income climbed some 185% to $56.3 million. Revenues for the year rose 80% to $337.6 million. In other words, the bottom line improved more than twice as much as sales.

The company’s stock has returned more than 80% to shareholders in the past year. I’m still expecting a two-year return of 58% on this position but if anything occurs to change that outlook I’ll be sure to let you know.

Editor’s Note: Some content has been removed from this article as it is subscription-sensitive material. American Wealth Underground and Millionaire’s Circle members can access the full article online now with their passwords. If you’re interested in learning the name of the newest American Wealth Underground recommendation, you can join by visiting this link.

Additionally, Michael Robinson has just launched a new service called 180 Trader… With a proprietary indicator that has never been wrong, this service is off to a blockbuster start with a special investigative exposé. Learn more about Michael’s turnaround stock investing strategy…

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Other Related Sources:

Should You Invest in Rare Earth Metals?

Rare Earths Stocks Rise Despite Mixed Headlines

My Exclusive Interview With a Key Rare Earths CEO

Read more at Taipan Publishing Group