Lynas shares worth a punt for the brave

With the downside limited and strong upside potential, Lynas shares might be worth a punt. But buyer beware.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

With the downside limited and strong upside potential, Lynas Corporation (ASX: LYC) shares might be worth a punt. But buyer beware.

Lynas shares jumped 7% to 70 cents on Wednesday after the controversial rare earths miner announced it had completed phase one construction of its Malaysian materials processing plant, known as LAMP.

Lynas has been developing its rare earth project for over ten years based on their rich deposit in Western Australia.

The $350m LAMP project is controversial in that local Malaysian residents fear there will be a radiation threat from processing the rare earths. Perhaps not surprisingly, although experts have demonstrated the project is safe, the locals are kicking up one hell of a storm.

Politically, it’s unlikely the Malaysian government will approve the LAMP before the next election, due by April 2013 at the latest. The delay — and there is always the chance the delay may turn into a closure — has put a firm lid on the share price, with Lynas shares languishing over 70% off their 2011 high.

In May this year, JP Morgan set a December 2012 share price target of $2 on Lynas, also saying in a scorched-earth scenario — where approval is not granted — it still sees 65 – 70 cents value in the company.

Earlier this month, Foster Stockbroking put out a rare sell call on Lynas, saying the expected delay in approval would have funding implications and cause balance sheet difficulties. The broker did however say it expects the LAMP will eventually receive approval.

An investment in Lynas today is high-risk but high-reward. At 70 cents, the downside does appear limited, and if JP Morgan are correct, the shares could almost triple from here, although that’s now highly unlikely to happen by December.

For the brave, the shares are probably worth a punt, but only with part of the speculative portion (0-10%) of your investing portfolio. Although there are never any guarantees in investing, especially when politics, protest and environment are involved, the odds are in your favour.

Another way to play Lynas is to simply wait for LAMP approval. Sure, if and when that happens, the share price will likely have jumped considerably higher, but even then, will likely still offer considerable upside potential.

In the meantime, if you’re looking for an altogether safer home for your investing dollars, look no further than our “Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool General Manager Bruce Jackson already owns shares in Lynas, and is already sitting on a loss, proving although the downside may be limited, there is still a downside to any investment.

The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

asx share price competitions represented by businessmen arm wrestling
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

person reading news on mobile phone
⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »