Is the rare earth price trend doomed to fail?

Actions speak louder than words, and China looks determined to build up a stockpile of the precious goods no matter what the cost. Don’t expect rare earth prices to fall anytime soon.

The dramatic rise in prices for rare earths is a tale of supply and demand. China, which formerly supplied as much as 95 percent of the world’s rare earth supply, has been tightening it’s grip on the export of the metals for the past year and a half. That’s led to incredible surges in demand for rare earths, which are increasingly used in high-tech products from electric cars to iPads and wind turbines.

Lathanium oxide is up 769 percent over the past seven months, and Cerium oxide is up 990 percent, according to Fool.com. Stocks in formerly obscure rare earth mining companies have rocketed up, too, with Molycorp, Inc. (NYSE:MCP) serving as the poster child for the frenzied run-up. Shares in the Colorado-based company have risen more than 200 percent over the past six months.

How long can the party last? That’s the million dollar question. China’s crack-down on rare earth exports could soon come under fire. A cluster of countries including the U.S. filed a raw-materials case with the WTO against China. The case alleges that China’s export quotas are illegal. China argues it’s limiting exports to protect its environment, but the WTO appears to disagree. Although the case applies strictly to raw materials including zinc and coke, if successful, it could open the door to future cases that specifically address China’s rare earth policies.

We’re not there yet, though. China could appeal the WTO’s decision and further draw out the process. If the appeal fails, China could shrug its shoulders and ignore the ruling altogether, coping instead with WTO sanctions. If China complies with the ruling, though, the U.S. and other countries will likely try a similar tact in getting China to open up its rare earth exports. The whole process would start over afresh; new case, new WTO ruling, new appeal, threat of sanctions, etc.

We’re not talking about a process that happens overnight, but if China does decide to open back up rare earth exports of its own volition during Q3 2011, we’ll likely see a dramatic plunge in prices for the metals. I, for one, think this is unlikely. Especially since news broke recently that China’s building a handful of enormous storage facilities to house rare earth strategic reserves. Actions speak louder than words, and China looks determined to build up a stockpile of the precious goods no matter what the cost.

Analysts at Morgan Stanley and JPMorgan agree. Both companies upgraded shares in Molycorp this week on China’s rare earth export quotes stating that the disruption “could cause supply outside of China to fall by as much as 40 percent.” “It all adds up, in Morgan Stanley’s thinking, to a stock worth $63 a share minimum – and perhaps as much as $140 a share,” writes Rich Smith at Fool.com.

China’s Great Dam on rare earths may not hold forever. Cracks are showing on the surface, but I don’t think we’ve seen the end to the run-up in prices yet. So long as rare earth mines outside of China struggle to move into production, growing demand for the metals is going to keep pushing up prices. Once the dam breaks, though, you’re going to want to make sure you’re on high ground.

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Yandex IPO date drawing near

It finally looks like Yandex’s IPO is drawing near. I’ve long maintained the company will have a powerful IPO, and I ranked it as my second-favorite IPO on my ‘Unofficial Tech IPO Calendar for 2011.’

Yandex may file for an IPO with the U.S. Securities and Exchange Commission in weeks, and the company could go public as soon as June, according to a report from Bloomberg

UPDATE: Yandex’s IPO date is set for May 24, 2011 on the NASDAQ under ticker “YNDX.”

Yandex operates the most popular search engine in Russia. Yandex.ru is also the most-visited Web site in the country and the 24th most-visited Web site in the world (per Alexa).

The site’s managed to resist aggressive competition from Google, Inc. (NASDAQ:GOOG) and Microsoft Corporation (NASDAQ:MSFT) with Yandex’s search market share in Russia rising from 52.4 percent in December 2009 to 55.5 percent in December 2010. Those gains could get a further boost after the company inked a deal late last year to integrate Facebook into its pages.

Revenue at Yandex surged 43 percent last year to $410 million, Bloomberg reports, with the total number of advertisers on the site growing by more than 40 percent to 180,000+. I’ve long maintained that Yandex will have a powerful IPO, and I ranked it as my second-favorite IPO on my Unofficial Tech IPO Calendar for 2011. First place? That goes to Chinese social networking site RenRen.com.

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Three reasons why I’d buy stock in a Spotify IPO

So long as Pandora and Apple cling to models that provide a sub-par user experience, I’m betting all my chips on Spotify. Now, let’s just cross our fingers that an IPO is in the works.

The debate over the future of the streaming music industry has me depressed. Executives, it seems, are incapable of divining what listeners want out of the music industry. I’ll try to distill it down: we want a Netflix for music. We don’t want a download-driven iTunes for music. We don’t want a custom-radio radio station (ala Pandora or Slacker) for music or a cloud-based music storage system. We want a subscription-based service that gives us access to millions of songs that we can listen to on demand.

The only company that seems to have figured this out is Spotify – a Swedish start-up that’s reportedly nearing a $100 million financing deal with venture capital tech titan Digital Sky Technologies (DST). DST’s well-known for investing in late-stage start-ups that are nearing an IPO. They own 10 percent of Facebook, for instance. They were in early on Zynga and Groupon, and now they’re ready to give Spotify a war chest as the streaming radio company looks to move into the U.S. market.

Here are three reasons why I’d buy stock in a Spotify IPO:

1) Spotify gives us full control. Lets be honest here. Part of the reason I use Pandora is because I’m too lazy to spend time transferring music onto my iPhone. I just can’t be bothered to deal with the multi-gig folders full of music I’ve built up over the years. If I can access what I want to hear when I want to hear it, I’ll pay for it. I don’t necessarily like Pandora’s model, but it’s easy. There’s just one glaring problem: Pandora doesn’t let you play specific titles or albums. You type in a song or artist you like, then get a “custom radio station” that plays similar music and – every now and then – the actual song or artist you wanted to hear in the first place. Don’t get me wrong, I’ve discovered some new bands I love (and probably wouldn’t have found any other way) while using Pandora, but they’re still leaving up that last little hurdle that’s infuriating: the inability to play a specific track. Spotify’s model gives us what’s missing in the streaming music industry: full control.

2) Subscriptions save me money. If Spotify’s music catalog is good enough when the company launches in the U.S., I’d be more than happy to fork over $15 a month to gain access to millions of songs. In essence, users would get an entire music store of albums for the cost of a single CD. This is precisely like the Netflix, Inc. (NASDAQ:NFLX) model; the model that brought down Blockbuster. If I were renting DVDs from a brick-and-mortar store at $5 a pop rather than streaming movies from Netflix, I’d easily be spending $50 or more a month.

3) Subscriptions offer steady revenue. The beauty of Spotify’s model comes from a long-term base of steady revenue – something most tech start-ups are lacking (i.e. Twitter). Lets say Spotify snags 20 million subscribers (Netflix’s total) at $15 a month; that’s good for $3.6 billion in revenue every year. That kind of money will buy you a lot of bandwidth and give you a whole lot of cash to use while negotiating deals with record labels.

So long as Pandora and Apple cling to models that provide a sub-par user experience, I’m betting all my chips on Spotify. Now, let’s just cross our fingers that an IPO is in the works.

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Will we ever see a SINA Weibo IPO?

A Weibo IPO would draw lots of attention and probably lots of dollars. With an estimated 120 million users, Weibo still trails Twitter by some 50 million accounts, but the size of China’s Internet market leaves ample room for growth.

One of the biggest growth stories out of China right now is SINA Corporation’s (NASDAQ:SINA) Twitter-like micro-blogging site, Weibo. Rumors surfaced during Q2 2010, that SINA might spin off Weibo (pronounced Way-Bwah) with a $100 million investment from search giant Baidu.com, Inc. (NASDAQ:BIDU) and B2B giant Alibaba. Such a move would turn Weibo into an independent company and likely fill the company’s coffers on the strength of a speculative IPO.

The odds of that happening seem scant, though. SINA’s counting on Weibo to fuel the company’s growth. Known predominantly as a Web portal company similar to Yahoo! Inc. (NASDAQ:YHOO), SINA’s been focusing on transforming itself into a social networking site that can tap into a network of outside app developers.

“Weibo is the best opportunity for Sina to transform into an Internet platform,” Ma Yuan, a Beijing-based analyst with Bocom International Holdings Co, told PeopleDaily.com last week. “It is becoming the next killer application on the Internet and mobile phones.”

It’s undeniable, though, that a Weibo IPO would draw lots of attention – and probably lots of dollars. With an estimated 120 million users, Weibo still trails Twitter by some 50 million accounts, but the size of China’s Internet market leaves ample room for growth.

SINA’s shares have priced in a $2 billion valuation on Weibo, according to Goldman Sachs analyst Catherine Leung. In Leung’s mind, that valuation’s steep, as Goldman downgraded SINA’s shares from Buy to Neutral.

I’m not sure I agree. The recent news that Twitter raised capital on valuations around $9 billion makes SINA’s stock look attractive.

Weibo currently dominates China’s micro-blogging industry controlling 87 percent of the market share in the niche. It operates much like Twitter, allowing users to post to the site online or via text message. Posts are limited to 140 characters, as they are on Twitter, but Chinese characters typically allow users to express more with fewer characters. Weibo’s also made significant improvements on Twitter’s model by allowing users to post replies to Weibo “tweets” and upload video and images.

SINA acts surprised when pressed on rumors that Weibo might spin off and IPO on its own. Pen Shaobin, VP of SINA and GM at SINA Weibo, denied rumors that Baidu and Alibaba are looking to invest in Weibo: “It is pure rumor,” he was quoted as saying on DoNews.com.

Interestingly, there was no mention or denial of an IPO in Weibo’s future, but I just don’t see it happening. It’d be like Apple spilling off its iPad division. Weibo’s too integral to SINA’s future to be sold off for a lump sum when the future gains look so promising. Don’t set aside cash waiting for a Weibo IPO, buy SINA shares instead. You’ll probably be better off.

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After Borders’ demise is Barnes and Noble stock a buy? (BKS)

Is the demise of a major competitor is enough to keep Barnes and Noble (NYSE:BKS) afloat in an industry with declining sales? Here are some key facts to consider when thinking about buying Barnes and Noble shares.

With the bankruptcy of Borders Group, Inc. (NYSE:BGP), Barnes & Noble, Inc. (NYSE:BKS) stands alone as the clear market leader in the brick-and-mortar bookstore business. That’s not without good reason. Barnes and Noble has simply proven nimbler in a rapidly-changing market.

When Amazon.com, Inc. (NASDAQ:AMZN) released its Kindle e-reader in 2007, the device was a phenomenal success selling out in five and a half hours. Barnes and Noble began work on their answer immediately: an e-reader called the Nook that runs on Google’s Android operating system. The Nook hit shelves almost two years to the day after the release of the Kindle.

Still, it’s not clear that the Nook and the demise of a major competitor is enough to keep Barnes and Noble afloat in an industry with declining sales. Here are some key facts to consider when thinking about buying Barnes and Noble shares:

Market share: The Nook currently controls 22 percent of the e-reader market, according to Goldman Sachs Group, Inc. (NYSE:GS). That’s a distant second to the Kindle’s 67 percent market share.

No more dividend: Shares in Barnes and Noble tumbled more than 14 percent yesterday on news that the company is suspending its annual $1 dividend. BKS will also suspend forecasting profits as it negotiates the fallout from Borders’ bankruptcy. The good news? Withholding that dividend will give the company an extra $60 million to use for investments or changes in strategy.

Sales: Barnes and Noble has underperformed analyst expectations for the past four quarters. Investments in the company’s digital platform led to a loss of $14.5 million in the nine months through January, according to Bloomberg.

For sale sign in the parking lot: Barnes & Noble put itself up for sale in August. When the news leaked, shares shot up some 25 percent, but a suitor was never found. “We assign a 30 percent probability to a transaction, recognizing potential challenges in financing a transaction and the potential lack of other bidders,” Goldman Sachs analyst Matthew Fassler told MarketWatch at the time. “We don’t see compelling value in the business.”

Don’t mess with my Nook: At the moment, digital book sales don’t add much to Barnes and Nobles’ bottom line. The company predicts it’ll generate $400 million in revenue this fiscal year from the Nook, and that will amount to 5.6 percent of the company’s $7.1 billion in annual sales expected by analysts, Bloomberg reports. Still, the growth in e-book sales has been phenomenal, shooting up more than 100 percent from $169.5 million to $441.3 million last year. The Nook also has an advantages over the Kindle with its color display and the ability to market its products in the store’s more than 700 locations and college campus bookstores.

The future: It’s clear that Barnes and Nobles’ future remains tied to the company’s success in the digital space. If the Nook can steal more market share from Amazon’s Kindle, it might be enough to keep the chain afloat. Whether Barnes and Noble can do that while still maintaining healthy relationships with publishers, writers and distribution platforms like Apple’s iTunes remains to be seen, though. Not to mention, the company will soon be competing with a leaner and meaner Borders Books. Predicting the outcome is a bit like trying to guess which character dies in a Harry Potter novel, but I do know that the road ahead is going to be bumpy and steep.

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Look for pop in Baidu stock on Facebook news (BIDU)

The possibilities for a ground-breaking partnership between Baidu and Facebook (one that might even make Google nervous) are limitless.

Executives from China’s leading search engine, Baidu.com, Inc. (NASDAQ:BIDU), are reportedly in talks with Facebook over a partnership. Several of Baidu’s brass were in the Silicon Valley yesterday, according to Business Insider. This comes on the heels of Facebook CEO Mark Zuckerberg’s visit to China in December, and it could lead to game-changing news for Baidu and Facebook.

A marriage makes perfect sense. Baidu’s social networking efforts haven’t exactly taken off, and Facebook’s currently blocked in the People’s Republic (a country that happens to be home to the world’s largest Internet population). A partnership could lead to lots of extra zeros for both companies’ bottom lines.

What a possible marriage might look like, though, is up for debate. “It would probably take the form of a joint venture for China to launch a China-specific, sanitized version of Facebook that would have limited if any linkages and data sharing with the global, ex-China Facebook,” writes the Insider’s Bill Bishop.

I’m all for keeping my information out of the hands of the Chinese government, but I’d also like to see something a bit more creative out of a Facebook-Baidu deal.

In the U.S., Facebook’s already partnered with Microsoft’s search engine, Bing. Type in a keyword or phase in Facebook’s search bar, and you can hit “See more results” to browse through Facebook profiles, Facebook Places, Facebook Apps and – at the very bottom of the screen – native search results from Bing. It’s not exactly prime real estate on Facebook, but the sheer amount of traffic on Facebook probably leads to significant click-throughs.

The more interesting aspect of a partnership between Facebook and Baidu might be how Baidu could integrate its search with social networking. Why not use Facebook Connect so that a user’s friends could see exactly what they’ve been searching for on Baidu lately? Or how about integrating status updates with search results and news pages, so that you can see your friends’ comments on the keywords you’re searching for?

The possibilities for a ground-breaking partnership (one that might even make Google nervous) are limitless. And the news that the two companies are even holding talks could be enough to lead to a short-term pop in Baidu’s stock price. If a partnership does get announced, I expect Baidu’s shares will soar.

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Five reasons to invest in the RenRen.com IPO

In what promises to be one of the most exciting IPOs of the year, China’s leading social networking site, RenRen.com, is planning an IPO in the U.S. Here are five reasons to consider investing in RenRen’s IPO.

In what promises to be one of the most exciting IPOs of the year, China’s leading social networking site, RenRen.com, is planning an IPO in the U.S. Here are five reasons to consider investing in RenRen’s IPO:

1) Reach. RenRen is China’s undisputed leader in social networking. A recent article on TechRice claimed the site has more than 160 million registered users. The site’s user base surged by more than 60 million people between October 2009 and October 2010. That’s good enough to rank RenRen as the 16th-most-visited site in China (per Alexa) and the 108th most-visited site in the world. The site’s closest competitors aren’t far behind, though. Kaixin001.com is ranked 19th in China, and 51.com, is ranked 43rd in China. Still, the visibility of a large IPO could help cement RenRen’s spot as a market leader.

2) The market size. At somewhere between 420 and 460 million, the size of China’s Internet population dwarfs even the entire population of the U.S. And those users are flocking to social-networking sites, which had 176 million users last year, up 68 percent from the year before, MarketWatch reports.

3) Innovation. RenRen.com started as a Facebook clone. It was such a blatant copy of Facebook that it even labeled itself a “A Mark Zuckerberg Production.” The site’s evolved into its own entity since its 2005 origins, although it still mirrors many of the same offerings on Facebook.com. RenRen, for example, unveiled RenRen Places (a check-in system that lets users broadcast where they are) around the same time that Facebook launched Facebook Places. The company also launched a RenRen Like button that can be embedded on Web site pages and RenRen Public Pages, which can be used by local businesses and organizations to promote events and offerings – both are features that were first launched on Facebook.

Still, there are signs that RenRen’s beginning to experiment and develop its own ideas from the ground up, and that could lead to significant new revenue streams. Most notably, RenRen has launched its own Groupon-style coupon system and a streaming radio service called Renren Aiting. The wide acceptance of virtual currencies in China also promises interesting revenue possibilities on RenRen as the company strengthens its applications platform and continues biting into the country’s large online gaming user base.

4) Surging revenues. While there isn’t any publicly available financial data on Renren yet, the company has said its advertising grew by “more than” 100 percent last year and in 2009, according to FT.com. Facebook.com, which is the second most-visited site in the world, reportedly had revenues of $1.2 billion over the first nine months of 2010.

5) Social media is just plain different in China. Cultural differences in media consumption in the U.S. and China could actually make RenRen.com more profitable than Facebook. Chinese surfers have long shown different consumption patterns in their browsing habits on the Web. “The usage of social media in China is off the charts relative to almost any country in the world,” Thomas Crampton, Asia-Pacific director of Ogilvy’s 360 Digital Influence, a social media marketing service, told HuffingtonPost. There’s actually a strong propensity there to follow and engage with brands and businesses on social networking sites. 87 percent of social networking users in China follow or “friend” brands. That makes interacting with companies the second-most popular activity on RenRen and other social networking sites, according to Ogilvy’s research. That’s the sort of engagement marketers dream about, and it could push RenRen into the green a lot faster than analysts might expect.

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Will Gilt Groupe IPO in 2011?

An IPO might help Gilt Groupe position itself as an industry leader in the U.S., but if they do plan to go public, they’d better do it quickly.

With deal-of-the-day sites like Groupon and LivingSocial generating reams of press coverage every day, the flash sale fashion industry is piquing the interest of private equity investors and major retailers around the world. Nordstrom bought out HauteLook for $270 million last week in a deal that was worth about 2 times the company’s revenue, according to Business Insider. Now, Gilt Groupe’s raising $80-$100 million from private investors in a deal that values the company around $1 billion.

Is Gilt Groupe readying for an IPO? Possibly. “The suddenly-rejuvenated IPO market … offers another potential attractive exit for Gilt Groupe’s investors,” writes Henry Blodget at Business Insider.

Gilt Groupe operates in an interesting niche somewhere between Groupon and discount clothing outlets like T.J. Maxx and Marshall’s. The company buys overstock clothing from retailers, then offers 36-hour flash sales to the site’s email subscribers. Most sales start at noon EST and offer a wide range of luxury products – from home furnishing to clothing and vacation packages.

Gilt Groupe’s not profitable yet, but the company’s revenues are growing quickly. After booking sales of $270 million last fiscal year, the company expects revenues to nearly double to $500 million this fiscal year, Business Insider reports.

Still, the competition is fierce. Sites like Groupon might have just enough cross-over appeal to eat into Gilt Groupe’s subscriber list. We can only look at so many email sales a day, after all. And at least five copycat sites that more closely duplicate Gilt Groupe’s model have cropped up in recent years.

An IPO might help Gilt Groupe position itself as an industry leader in the U.S., but if they do plan to go public, they’d better do it quickly. Otherwise, someone else likely will, and the public appetite for trendy new Web sites could start to wane after what’s promising to be a particularly active year for tech IPOs.

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Future looks bright for Taseko Mines Ltd. (AMEX:TGB)

After a deep sell-off in November, things are definitely looking better for Taseko Mines Limited (AMEX:TGB). I’m kicking myself for not buying in.

I’ve been kicking myself for not buying shares in Taseko Mines Limited (AMEX:TGB) after a deep sell-off in November. Investors punished Taseko shares after the Canadian government rejected plans to develop TGB’s massive Prosperity gold and copper deposit in British Columbia.

Taseko shares bounced around for a month on the bad news. Since then they’ve been on a tear, rising more than 40 percent over the past three months in the face of surging copper demand and, most recently, on plans for expansion at Gibraltar. Things are definitely looking better for TGB. Here are a few recent developments that might make the stock a great addition to your portfolio:

  • Gibraltar’s getting bigger. Pending approval by partners, Taseko announced plans earlier this week for a $325 million expansion at Gibraltar – a large copper and molybdenum mine in British Columbia. A new concentrator at the site should grow copper production by 60 million pounds a year to 180 million pounds a year by Q4 in 2012, according to MiningWeekly.com. Taseko’s also budgeting a new molybdenum recovery facility that will boost production in the steel alloy ingredient by 1 million pounds a year.
  • Price target gets a boost. On the heels of the announcement that Taseko’s expanding its Gibraltar mine, Canaccord Genuity raised its price target on the stock from C$7.00 to C$7.75 yesterday. The Globe and Mail reports that “analyst Orest Wowkodaw (at Canaccord) likes the company’s strong balance sheet, attractive relative valuation and significant leverage to the red metal.”
  • Prosperity could see daylight yet. The contentious development of Taseko’s Prosperity mine has some powerful political allies that could help the company ultimately get the mine approved. The B.C. government, for instance, pledged its support, and a candidate for B.C. Premier, Christy Clark has moved the mine to the top of her agenda, according to The Globe and Mail.
    “I think the Prosperity Mine needs to move ahead, not just for the thousands of jobs that would be created over the years in the Williams Lake area, but as a signal to investors across the world that British Columbia is open for investment, and if you want to tell people not to come the Prosperity Mine is a pretty big signpost telling them we don’t really want investment here,” Clark told the paper early this month. “We have to change that.”

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Avalon Rare Metals Inc. surges on ‘speculative buy’ rating (AVL)

Mackie Research has initiated coverage on Avalon Rare Metals Inc. (AMEX:AVL) with a “speculative buy” rating. The stock rose 7 percent on the news.

Avalon Rare Metals Inc. (AMEX:AVL) rose nearly 7 percent yesterday on news that Mackie Research initiated coverage on the company with a “speculative buy” rating, according to Reuters Canada.

Avalon has long looked under-valued, particularly after news broke that the company had increased its indicated resources at its flagship Nechalacho or Thor Lake mine last month. “We think that the market is not anywhere close to where the valuation of the mine should be,” Mackie Research analyst Matt Gowing told Reuters. Mackie set a price target of C$10.50 on the stock.

The enthusiastic rating added to momentum in rare earth stocks after China announced plans for ‘stricter’ regulation of the sector earlier this week. China currently controls as much as 95 percent of the world’s supply of rare earth minerals, and the government there has capped exports dramatically over the past year. That’s led to a big rise in prices for rare earth stocks, and Avalon has been one of the primary beneficiaries. The stock’s up more than 80 percent since starting to trade on the AMEX in December. That’s not bad for a company that expects to start production at Thor Lake in 2015 after completing a C$1.3 billion rare earth processing facility. Initial output of rare earths will be around 10,000 tons per year.

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