Very few companies demonstrate the complexity of the current trade conflict and the strategic necessity of securing rare earth materials for the U.S. more effectively than MP Materials (NYSE: MP), and its share price action this week, up 21.8% at the time of writing, underscores this point.
A complicated trading position
Management describes the company as being “America’s rare earth magnetics champion,” as it is “America’s only fully integrated rare earth producer.” However, as fellow Fool.com writer Rich Smith notes, Shenghe Resources (a majority-owned subsidiary of China’s Shenghe Resources Holding Company) was a major customer of MP Materials, and the company that MP Materials “sells the vast majority of its rare earth concentrate” to, according to its SEC filings.
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Moreover, in mid-April, MP Materials said it had “ceased shipments of rare earth concentrate to China” due to China’s tariffs and the issue of selling critical materials not being “aligned with America’s national interest.” As such, the trade conflict is a near-term negative for MP Materials.
The long-term picture
That said, and as management consistently argues, the company’s real growth opportunity lies in being part of the U.S. developing its own rare earth supply chain. It’s a point reiterated by CEO James Litinsky on a recent earnings call: “What is now abundantly clear is that the United States must urgently accelerate its full-scale domestic rare earth magnetic supply chain.”
Image source: Getty Images.
As such, when speculation rises that the administration is working to secure funding for the company, the stock is likely to perform well, as it did this week.
It’s an interesting situation, but with so much uncertainty surrounding the company’s direction, it’s challenging to argue that retail investors have any kind of advantage in investing in the stock.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.
