The best rare earth stocks are in the spotlight as the demand for strategic and rare earth metals has been on the rise. The increase comes in part on the back of rising consumer interest in green energy and electric vehicles (EVs).
For instance, the VanEck Rare Earth/Strategic Metals ETF (NYSEARCA:REMX), which provides exposure to businesses that focus on the mining, refining and manufacturing rare earth/strategic metals, has declined 12% since the beginning of 2022. By comparison, benchmark indices the S&P 500 and the Dow Jones Industrial Average are down 10.2% and 7.1%, respectively.
By technical definition, rare earth elements include 17 metallic elements, most of which come from the periodic table. They are widely used to make tech products, ranging from consumer devices to lasers and radar systems. These elements are especially crucial to the transition to a greener economy, as they are used in wind turbines and EV batteries.
Recent research suggests the rare earth metals market size can reach $15.5 billion by 2030, growing at a compound annual growth rate (CAGR) of 9.1%. According to U.S. Geological Survey, China remains the world’s largest rare earth elements producer and exporter, accounting for almost 60% of the global output. However, U.S. Treasury Secretary Janet Yellen has recently noted they want to end the dependency on rare earth elements, solar panels and other essentials from China.
With that information, here are the three best rare earth stocks to buy now.
Best Rare Earth Stocks: Livent (LTHM)
52-week range: $19.35 – $34.61
Lithium is a vital component for Lithium-ion batteries used in EVs and consumer electronics. According McKinsey, the demand for lithium-ion batteries can increase at a CAGR of 30% over the next decade. Although lithium is not a rare earth metal, it gets significant attention due to its use in alternative energy technologies. A number of lithium companies are found in the REMX exchange-traded fund as well.
Therefore, first up on today’s list of rare earth stocks is Livent (NYSE:LTHM), which manufactures finished lithium compounds used primarily in lithium-based batteries, specialty polymers and chemical synthesis applications. It operates in the U.S., U.K., India, China and Argentina.
The company presented second-quarter financial metrics on Aug. 2. Revenue soared 114% year-over-year (YOY) to $218.7 million. Adjusted net income was 37 cents per diluted share compared to 4 cents in the year-ago period. Cash and equivalents ended the quarter at $49 million.
The pure-play lithium producer remains on schedule with capacity expansions. Meanwhile, it has entered into a long-term sourcing agreement with General Motors (NYSE:GM). Management also raised 2022 full-year revenue guidance from $755 million to $835 million to between $800 million and $860 million.
So far this year, LTHM stock has returned more than 17%. Shares are trading at 18.6 times forward earnings and 9.24 times sales. Analysts’ 12-month median price forecast for Livent stands at $31.
MP Materials (MP)
52-week range: $27.48 – $60.19
Our next pick is MP Materials (NYSE:MP), the largest producer of rare earth materials in the Western Hemisphere. In 2021, it supplied roughly 15% of the rare earth content consumed globally.
On Aug. 4, MP Materials posted strong Q2 financial results, mainly due to rising demand and prices for rare earth elements used in EVs and a range of consumer goods.
Revenue surged 96% YOY to $143.6 million. Adjusted earnings came in at $81.9 million or 43 cents per diluted share, the latter up 139% from 18 cents in the prior-year quarter. Free cash flow stood at $102.4 million, up from $3.3 million a year ago.
The rare earth miner currently ships more than 90% of its products to China for processing. However, it is upgrading two U.S. processing facilities. As a result, it should be able to provide separated rare earth oxides directly to end users and turn certain rare earth elements into alloy flakes and magnets. Wall Street will be keeping a close eye on how less reliance on China could could contribute to top line.
In April, MP Materials and General Motors announced a long-term supply agreement commencing in late 2023 for U.S.-sourced and manufactured rare earth alloy and magnets for GM’s EV programs.
So far, in 2022, MP stock is down around 25%. The company’s forward price-to-earnings (P/E) and price-to-sales (P/S) ratios are 25.2x and 14.5x, respectively. The 12-month median price forecast stands at $50.
Best Rare Earth Stocks: Tronox Holdings (TROX)
52-Week Range: $14.78 – $26.33
Tronox Holdings (NYSE:TROX) is a vertically integrated manufacturer of the titanium dioxide (TiO2) pigment. TiO2 is used for various industrial and consumer products, such as paints and coatings, plastics, paper, and printing ink.
The manufacturer released Q2 financials on July 27. Revenue grew 2% YOY to $945 million. Net income was $375 million, or 84 cents per adjusted diluted share, the latter up 38% from 61 cents YOY. Metrics showed a cash outflow of $67 million due to the $85 million settlement payment to Venator Materials (NYSE:VNTR).
Management reaffirmed full-year 2022 guidance. The company expects an adjusted earnings per share, or EPS, of $3.15 to $3.59 and free cash flow of at least $300 million by year-end.
TROX stock has lost about a third of its value since January and hit a 52-week low on Aug. 9. Yet, it currently yields a dividend of 3%. Shares are changing hands at 4.4 times forward earnings and 0.7 times sales. Wall Street’s 12-month median price forecast for TROX stock is $25.
On the date of publication, Tezcan Gecgil, Ph.D., did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
