The U.S.-China trade tiff has impacted several industries, one such industry being the rare earth element. Though this sector is yet to receive investors’ attention, rare earth is one of the crucial elements that makes the majority of electrical appliances, starting from smartphones, display panels, speakers, to televisions and more. Rare earth metals refer to a group of 17 elements that include lanthanum, which is used in oil refining and neodymium that is used to create permanent magnets.
So far, China is the only country that holds about 70% of the world’s known rare-earth reserves, making it the dominator in this market. But now, under President Joe Biden’s administration, the Department of Energy has planned to make rare earth metals a priority among the domestic supply chain. Rare earth elements are crucial to Biden’s ambitious climate and technology policy. These metals are used in electric vehicle production, battery, renewable energy systems and technology manufacturing.
America Ups Rare Earth Metals Game
According to the U.S. Geological Survey report, 80% of rare earth metals were imported from China in 2019. However, the percentage was much lower last year due to the pandemic-led supply chain disruptions. China has already set limits and duties on rare earth exports, taking advantage of its dominance in the market and restricting exports during trade disputes.
Now, in order to meet the net-zero emission target, the Biden administration has to make efforts to overcome the supply chain hurdle and draw a line on the geopolitical rivalry. To bridge the gap in the domestic supply chains for rare earth, chips and other key resources, the Biden administration is already in talks to pass a $2-trillion infrastructure bill. This massive investment is planned to facilitate the building of climate change technologies. What boosts the rare earth space more? In January, the U.S. Department of Energy (DOE) announced $28.35 million in federal funding for cost-shared research and development projects on rare earth elements and critical minerals for industrial and manufacturing applications. Scandium and yttrium are on the demand list, required for the manufacture of cell phones, LED screens, solar panels, energy infrastructure, defense technologies, and other essential high-tech applications.
Later in April, the department awarded another $19 million for 13 projects to support the production of rare earth elements and critical minerals that are essential for the manufacturing of batteries, magnets and other components to achieve a clean energy economy.
IPOs Boosting the Space
Capital inflow, funding and initial public offering continue to boost the rare earth element space. Last year, rare earth miner MP Materials Corp. MP went public after merging with a special purpose acquisition company (SPAC) for around $1.47 billion. With the American government’s support to reduce reliance on China’s rare earth minerals, several companies are making efforts to make use of the opportunity. Both MP Materials and Lynas Rare Earths received grants from the U.S. Department of Defense to boost domestic production of rare earth minerals.
USA Rare Earth, a mining firm, is also planning to get listed on the NYSE this year at a valuation of more than $1 billion. The company is already developing the Round Top Mountain mine near Sierra Blanca, in Hudspeth County, TX, and plans to commence operations by 2023.
5 Stocks to Watch
While extraction of rare earth metals faces environmental concerns, the industry is getting a greenlight from the government as these companies comply with directives to arrange for permanent disposal of toxic waste and build waste treatment facilities. Rare earth metals play a huge role in the development of technologies to generate cleaner, renewable energy. Thus, we have shortlisted five rare earth element stocks that investors should keep a close watch on.
Tronox Holdings plc TROX operates titanium-bearing mineral sand mines, and beneficiation and smelting operations. The company's expected earnings growth rate for the current year is more than 100% compared with the Zacks Chemical - Diversified industry’s projected earnings growth of 28%.
The Zacks Consensus Estimate for the company’s current-year earnings has been revised 37.1% upward over the past 60 days. Tronox flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Materion Corporation MTRN manufactures and sells advanced engineered materials used in semiconductor, industrial, aerospace and defense, automotive, energy, consumer electronics, and telecom and data center markets. The company's expected earnings growth rate for the current year is 55.7% compared with the Zacks Mining - Miscellaneous industry’s projected earnings growth of 28.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 9.7% upward over the past 60 days. Materion sports a Zacks Rank #2 (Buy).
Freeport-McMoRan Inc. FCX engages in the mining of mineral properties. The company's expected earnings growth rate for the current year is more than 100% compared with the Zacks Mining - Non Ferrous industry’s projected earnings growth of 10.2%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 15.1% upward over the past 60 days. Freeport-McMoRan carries a Zacks Rank #3 (Hold).
BHP Group BHP engages in the exploration, development, and production of oil and gas properties. The company also engages in mining of copper, silver, zinc, molybdenum, uranium, gold, iron ore, and metallurgical and energy coal. This Zacks Rank #3 company's expected earnings growth rate for the current year is 83.5% compared with the Zacks Mining - Miscellaneous industry’s projected earnings growth of 28.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 3.8% upward over the past 60 days.
MP Materials engages in the ownership and operation of integrated rare earth mining and processing facilities. The company's expected earnings growth rate for the current year is 88.9% compared with the Zacks Mining - Miscellaneous industry’s projected earnings growth of 28.9%. The Zacks Consensus Estimate for the company’s current-year earnings has been revised 59.4% upward over the past 60 days. MP Materials carries a Zacks Rank #3.
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