China Rare Earth Element Stocks Trading at Rich Valuation Levels

(NEW YORK)--Rare Earth element Chinese stocks have been showing strong performance since China announced it was holding off shipments of these industrial minerals over the past weekend, but have they moved too far too fast.

Some of the biggest performers within the sector are China Shen Zhou Mining & Resources, Inc. (SHZ), China Direct Industries (CDII), and Qiao Xing Universal Resources, Inc (XING). These stocks have been performing spectacularly over the past few trading sessions, but now they may be getting ahead of themselves on a valuation bases.

For example, SHZ has a market capitalization of around $115 million, and is currently trading around 2.86 times book value. A pretty rich market cap for a company with only around $6 million in revenue, and total cash per share of just $0.02.

But, on the other hand, you are dealing with a potential embargo from China, one of the world's largest producers of rare earth elements. This story could unfold well into the 2011 as the Obama Administration continues to put pressure on the Chinese government for more fair trading practices.

This could be a play well into the end of the 2010 trading session, but for new investors looking to partake in this story it may be prudent to hold off at these levels. Most of these stocks are currently trading well above fundamentals, and technical analysis on the charts are indicating a potential sharp pullback in the sector within the next few trading sessions.

After any pullback, the rare earth element stocks and China's effect on this market, could be just the start of a monster trade as a potential trade-battle between the West and China starts to unwind. That, in itself, would send these issues to unimaginable valuation levels in the coming months.

http://www.wallstreetnewscast.com/news/2010/october/chinaearth.html