Based on the article by Mark Bertolini, this article provides a further breakdown of the advantages of the Molycorp Preferred Mandatory Convertible Series A (MCP-A). While I disagree with Mr. Bertonlini that the shares are appropriate for those relying on income for retirement, I believe they provide a unique way to invest in Molycorp (MCP) for investors who can afford to take more risk.
Molycorp is a volatile stock, and the preferred is just as volatile. However, with the company beginning to realize profitability, their production continuing to rise, and rare earth prices reaching record levels on Chinese supply concerns, I believe the company is well-positioned for the next few years. Analyst price targets range from $57-$90, with a consensus of $63
Data from TD Ameritrade
The advantage to buying the preferred shares is the quarterly dividend, paying you to wait and providing some downside protection. The shares pay $1.375 quarterly on March, June, September and December 1st. This equates to an annual yield of about 9% at current prices. With 9 remaining dividend payments, you would receive a total of $12.375/share from now until conversion.
The shares automatically convert to common on March 1st 2014 at a defined rate depending on the common’s price. Because of the convertible feature the preferred shares usually trade in correlation to MCP with a slight premium.
MCP Price on 3/1/2014 | Shares of MCP Received/Share of MCP-A |
<50 | 2 |
50-60= 100/Price e.g. 100/55= 1.8181 shares | 100/Share price: e.g 100/$55 =1.8181 shares |
>60 | 1.66 Shares |
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MCP over the next 72 hours. I may initiate a position in MCP-A over the next 72 hours.
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