3 Stocks Worse Than the Market
Dec 29th 2011 1:51PM
Updated Dec 29th 2011 2:02PM
CAPS Rating (out of 5)
|Molycorp (NYS: MCP)||**||(14.1%)|
|Rare Element Resources (NYS: REE)||*||(11.6%)|
|Parlux Fragrances (NAS: PARL)||**||(9.8%)|
Source: Motley Fool CAPS.
The markets tumbled 140 points yesterday, or 1.1%, so stocks that went down by even larger percentages are pretty big deals.
That's going to leave a mark
What a difference a year makes. Rare-earth element companies like Molycorp and Rare Element Resources were flying high as China imposed quotas on exports of the minerals. Although it became apparent these rocks weren't so rare after all, China was practically the world's sole producer, and with their being used in everything from advanced military technology to hybrid car batteries, the impact of the supply being cut off caused prices to soar.
It also led shares of miners to rocket higher too. But "miner" is a misnomer. Rare Element Resources and Avalon Rare Metals (NYS: AVL) haven't even broken ground yet. A host of Chinese companies like China GengSheng Minerals and China Shen Zhou had only the most tangential relationship to rare-earth elements. Molycorp might be the closest thing to a real miner here, but even then it still has years to go before any element, rare or otherwise, reaches the surface.
While I didn't rate Molycorp on CAPS to underperform the market (goodness knows why), I did take Rare Element Resources to task for trying to capitalize on the REE fever despite its Bear Lodge project previously tapped by Molycorp, Hecla Mining (NYS: HL) , and Duval to no good outcome. Newmont Mining (NYS: NEM) even sought gold there without success.
Now that China isn't tightening the screws on rare-earth elements anymore, and will likely eliminate them if and when these companies bring their mines on line, the miners are losing their value to investors. CAPS All-Stars tilt only slightly in favor of Molycorp being able to beat the market, while they're decidedly against Rare Element being able to do so. The stocks' low CAPS ratings, however, suggest that regardless of where the individual members stand, they think there are better places for your money.
In the breakdown lane
It's been a few years since I've even thought about the once ethically challenged Parlux Fragrances, a maker of branded perfumes from the likes of Paris Hilton and Rihanna. It lost the license to Guess? (NYS: GES) last year. But a series of lawsuits, takeover attempts, and management changes ultimately led to the ouster of its chairman and CEO Ilia Lekach, perhaps the source of much of the fragrance maker's misfortunes.
Today he's only connected to the company as a consultant, but Lekach did get a half-million warrants when they tossed him aside, giving him the right to purchase company stock at an exercise price of $1.16 a share. So depending upon how much he still owns today, he could get a nice payday from the buyout of Parlux by Perfumania, which offered to buy the company for $4 cash per share plus 0.2 shares of Perfumania stock (or just 0.53 shares of stock).
Perfumania is controlled by the Nussbaum family, which also owns about 11% of the stock. They were instrumental in getting rid of Lekach.
CAPS member rodessa had been expecting Parlux to get bought out for several months, but was willing to wait for the payoff to come from it taking a higher profile in selling its perfumes: "Company could be bought in the coming months and the income should benefit of increasing expenses in marketing during the previous quater."
Let us know in the comments section below or on the Parlux Fragrances CAPS page whether you think it's time this saga came to an end, and be notified if and when it happens by adding it to the Fool's free portfolio tracker.
Ready for a resurrection
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Click here to see his holdings and a short bio. The Motley Fool owns shares of Guess?. Motley Fool newsletter services have recommended writing covered calls in Guess?. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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