Rare Earth Exchanges

MP Materials Stock Surges, Due to the Chinese Trade Dispute News?

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Highlights

  • MP Materials’ stock price increased 11% following China’s export restrictions on critical minerals.
  • The company aims to become a vertically integrated rare earth magnetics producer in the United States by late 2025.
  • Analysts provide mixed ratings, with most recommending a buy, despite challenges in revenues and profitability.

Why did the stock of a company that mines and processes rare earth elements (REE) surge by 11% today?

Rich Smith, reporting (opens in a new tab) for investor site The Motley Fool, attributes the 11% surge in MP Materials’ (opens in a new tab) (MP) stock price to China’s announcement of export restrictions on critical minerals like gallium, germanium, and antimony to the U.S. These materials are vital for semiconductor production and military applications. The author suggests that investors view MP Materials, a leading U.S. rare earth producer, as a beneficiary of these restrictions, anticipating increased demand for domestic sources.

Of course, the author makes some underlying assumptions, which, in at least some cases, are likely accurate.  For example, the author assumes that China’s export restrictions will lead to a significant increase in demand for MP Materials’ products.  Not a bad bet all things considered.

It is presumed that MP Materials can scale its operations to meet this anticipated demand of course remains as another assumption.   Finally, the analysis assumes that the trade tensions will persist, continuing to impact the supply chain.

The more holistic and comprehensive our understanding of this company and its stock, the better. Does the author exhibit any biases? For example, the Motley Fool recommends the company, and the author holds positions in its stock.

Could the analysis overemphasize the immediate benefits to MP Materials without fully considering potential challenges, such as the company’s current unprofitability and existing debt.

MP Materials is building a rare earth magnet manufacturing facility in Texas and has started producing some rare earth oxides at its California mine site. The company is also building a new facility in Fort Worth, Texas to convert refined minerals into metals, alloys, and magnets. 

MP Materials expects to be producing finished magnets by late 2025. Their goal is to become the world’s sole “vertically integrated” rare earth magnetics producer, performing all stages of the process in the United States

In summary, the author links the stock price increase to geopolitical developments affecting mineral supplies, assuming that MP Materials will benefit from these changes. However, the analysis may not fully account for the company’s financial challenges and the complexities of scaling operations.

Investment analysts have multiple ratings for MP Materials Corp. (MP), including those listed below. The company is currently priced at $23.11.

  • Brokerage recommendation (ABR): 1.73 on a scale of 1 to 5, where 1 is Strong Buy and 5 is Strong Sell. This rating is based on recommendations from 11 brokerage firms, with seven of them being Strong Buy. 
  • Consensus rating: Moderate Buy, based on 5 buy ratings, 3 hold ratings, and 0 sell ratings. The average price target is $21.08. 
  • Nasdaq Analyst Research: Strong buy, based on recommendations from 11 analyst firms. 
  • Benzinga: Buy, with a consensus price target of $26.50. 
  • Fintel: Hold, meaning the stock is likely to perform in line with the broader market over the next 12 to 18 months. 
  • Zacks: Value Score of F, indicating it may be overvalued and a bad pick for value investors.

Analysts evaluate a stock’s expected performance based on their research and their own opinions. 

While MP Materials has demonstrated resilience via various strategic initiatives and maintaining strong liquidity, challenges also exist.

Declining revenues and profitability in recent periods highlight the need for effective execution of vertical integration plans and adaptation to market dynamics to sustain financial health.

The company’s value is based on a serious premium right now, but they are about the only REE play in the United States at this point.

Some of the biggest institutional investors own shares of MP Materials. Investors include Blackrock Inc. (9.63%); Vanguard Group Inc. (7.79%); State Street Corporation (4.09%); Price (Thrower) Associates Inc. (2.78%) and QVT (2.14%).

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