For investors in Rare Earth Minerals (LSE: REM), the last year has been rather mixed. While news flow has generally been rather favourable and has shown that the company is making encouraging progress, its share price has doubled and then fallen back to the same level where it started one year ago. In other words, it has been somewhat hit and miss.
Future Potential
Of course, Rare Earth Minerals has huge potential. The lithium market is currently one of the few commodity markets in the world that has excellent long term growth prospects and, while the outlook for commodities such as oil and iron ore is somewhat downbeat, demand for lithium looks set to increase at a double-digit rate per annum for the foreseeable future. As a result, Rare Earth Minerals could eventually become a very profitable company that posts impressive, and more consistent, gains in its share price.
Stability
However, lithium isnt the only commodity with a relatively bright future. In fact, gold could be a surprisingly strong performer in future, even though inflation is negative (or near-negative) across much of the developed world, and the chances of an implosion of the financial framework and infrastructure seem slim (gold was seen as a safe haven from high inflation and a financial meltdown in the past).
In fact, gold miners such as Randgold Resources (LSE: RRS) (NASDAQ: GOLD.US) and Polymetal (LSE: POLY) are expected to increase their earnings over the next couple of years. For example, Randgolds bottom line is due to increase by 22% next year, while Polymetals is set to be 8% higher this year. Despite this, both stocks appear to offer excellent value for money at the present time, with Randgold having a price to earnings (P/E) ratio of 28 and Polymetal having a P/E ratio of just 10.6.
When combined with their respective growth rates, the above ratings equate to price to earnings growth (PEG) ratios of just 1 (Randgold) and 1.3 (Polymetal), which indicate that their share prices could move much higher. Thats especially the case since their share prices have disappointed in the last year; being down 2% in Polymetals case and up just 6% for Randgold.
Looking Ahead
While Rare Earth Minerals has a bright future, there are a number of hurdles that it must overcome. These include financing and confirming the reserves that are expected to be available; neither of which are likely to be perfectly straightforward. In fact, either of these two issues could prove challenging and, while there are highly profitable stocks such as Randgold and Polymetal that offer great value for money and a more stable shareholder experience, I would rather invest my hard-earned cash there than take a greater risk with Rare Earth Minerals.
In other words, Rare Earth Minerals may have huge potential, but there seem to be more appealing risk/reward ratios on offer within the resources space.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
