Starting in 2020, the media has been increasingly covering the rare-earth materials market. If you’re interested in profiting from this market, a solid pick would be MP Materials (NYSE:MP) since you can buy and sell MP stock directly on the New York Stock Exchange.
That’s much easier than trying to own the rare-earth materials themselves – and besides, with MP Materials shares you’d be owning a stake in the Western Hemisphere’s largest producer of rare earth materials.
Plus, as I learned from InvestorPlace contributor William White, MP Materials is responsible for around 15% of the world’s rare-earth magnets.
No doubt, MP Materials is a giant in the U.S. rare-earth sector, but there’s also competition globally from China. Is this a problem, or an opportunity? Stay tuned as we get down and dirty in the lucrative rare-earth market.
A Closer Look at MP Stock
The public debut of MP stock on the New York Stock Exchange took place on Nov. 18, 2020. This happened through a through a special purpose acquisition company (SPAC) deal rather than through a traditional initial public offering (IPO).
That first day, the shares traded in the $15 area. In hindsight, we now know that this was a bargain. As it turns out, the share price soon rose to a short-term peak of $39 and change on Dec. 22.
And, that wasn’t even the end of the rally as the buyers pushed the MP stock price all the way up to a 52-week high of $51.77 on March 2, 2021.
Stocks can’t just keep on going up forever, and a pullback in the share price was practically inevitable. The stock price is currently at $35.15.
Is this a terrible problem, or an opportunity for enterprising investors? After learning more about the rare-earth market, you might decide that the pullback in MP stock is a gift from Wall Street.
Big Market, Big Company
MP Materials is a company that’s poised to capture a piece of a very large segment of the global economy.
The global rare earth elements market, according to Grand View Research, is projected to reach a whopping $5.62 billion by the year 2025.
I already mentioned that MP Materials is responsible for a sizable portion of the world’s rare-earth magnets. This should pique your interest if you’re into electric vehicle investments.
That’s because magnets that use the rare-earth materials neodymium and praseodymium are used in the manufacturing of electric vehicle batteries.
MP Materials isn’t a quiet player in this burgeoning market – it’s clearly seeking to secure a leadership position.
Between 2020 and 2023, MP Materials expects its profits to increase from around $30 million to $250 million.
But then, MP Materials Chairman James Litinsky is surprisingly modest in his vision for the company. “We don’t need to take over the entire industry. All we need to do is be thoughtful about how we invest and execute and it’s just a pretty extraordinary business opportunity.”
Get Your Bucket Ready
Skeptics and doubters might object that it’s going to be challenging for Las Vegas-headquartered MP Materials to compete with China, a competitive nation in the rare-earth market.
As Weiss Ratings editor Sean Brodrick evidently sees it, this isn’t necessarily a bad thing for U.S.-based rare-earth producers.
“The U.S. government is about to throw money at companies in this industry. Grab a bucket and get busy,” Brodrick suggests to investors.
And indeed, the U.S. Department of Defense already awarded MP Materials a DPA Title III technology investment agreement “to establish domestic processing capabilities for light rare earth elements.”
Why would the Department of Defense be interested in these particular materials?
It’s because they’re “critical to numerous defense and commercial applications, including petroleum refining, glass additives, and magnets used in electric vehicle drivetrain motors and precision-guided munitions.”
To put it another way, the United States wants to see a ramp-up in the domestic production of rare-earth materials, pronto. And without a doubt, MP Materials will be glad to fulfill the government’s orders.
The Bottom Line
There’s a war going on between the U.S. and China. It’s not a war with missiles, but with commodities.
Rare-earth materials are in high demand. That demand is likely to only increase in the coming years.
How can investors potentially capitalize on this? Thankfully, there’s no need to store rare-earth materials in your home or office. Instead, you can just start accumulating shares of MP stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.