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The Next Gold Rush: 3 Rare Earth Metals Stocks to Buy Now

Nov 08, 2023

Demand for rare earth metals is heating up as countries worldwide try to secure reliable supplies of nickel, cobalt, aluminum, and others that are used to build technologies ranging from electric vehicles to smartphones. Even rarer earth metals such as tantalum, gallium and niobium are instrumental for capacitors, integrated circuits, and semiconductors. As our world becomes more tech-reliant, the demand for these metals increases.

Fortune Business Insights forecasts that the worldwide market for rare earth metals will grow to $5.52 billion by 2028. This is a significant increase, with the market in 2021 at $2.83 billion. Driving that growth are the mining companies that specialize in extracting rare earth metals from the ground in often inhospitable environments spanning from the Canadian arctic to the jungles of South America.

As demand for the metals grows, so too will the stocks of the extraction companies. Here are three recommendations of stocks to buy now before the next gold rush of rare earth metals.

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Source: T. Schneider / Shutterstock

We begin with Australian mining giant BHP Group (NYSE:BHP), which digs for rare earth metals around the world including in Canada, home to one of the world’s biggest supplies. Notably, BHP mines for nickel, which is an essential ingredient in the batteries that power electric vehicles. The company also mines for rare earth metals such as copper and aluminum that are used in electronic devices. Recently, BHP announced a partnership with Lynas Rare Earths (OTCMKTS:LYSDY) that will boost its supply of rare earth metals.

Beyond its leading role in the mining and production of rare earth metals, there are other reasons to like BHP stock. While the share price has registered a modest year-to-date gain of 5%, the stock currently trades at just five times future earnings estimates, making it look cheap at current levels. Additionally, BHP pays a quarterly dividend of $1.33 per share, which offers shareholders a monster yield of 8.25%. Given the valuation, dividend, and future growth prospects, BHP stock looks like a definite buy.

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Next we have Brazilian mining concern Vale SA (NYSE:VALE). Vale distinguishes itself as the largest producer of nickel in the world, which, again, is an essential ingredient in EV batteries as well as in laptop computers, digital cameras, and other tech devices. While VALE stock has posted a modest gain of 15% over the last 12 months, many analysts say it is only a matter of time before the share price surges, driven higher by exploding demand for nickel and other metals the company hauls out of the ground.

It was just announced that Vale SA is close to selling 10% of its base metals business to Saudi Arabia’s sovereign-wealth fund and state-owned mining company for $2.5 billion. The sale comes at a time of fluctuating prices for many of the rare earth metals that Vale SA extracts from the ground, which has bogged down the company’s share price. However, like rival miner BHP Group, Vale SA is trading at an extremely low valuation of just four times future earnings. And VALE stock pays a chunky dividend of 27 cents a share for a yield of 7.13%.

Source: Shutterstock

For a specialty rare earth metals company, we have MP Materials (NYSE:MP) which owns and operates the Mountain Pass mine, the only rare earth metals mine and processing center in the United States. MP Materials focuses on the highly specialized and exceedingly rare metal neodymium-praseodymium (NdPr), which is used in the magnets that power electric vehicle motors, wind turbines, drones, various robots, and other technologies that use advanced motion systems.

Owing to its specialized focus, MP stock has been a strong performer in the rare earth metals category. Most specialized rare earth companies have shares that trade on the penny stock league tables. However, MP Materials’ stock has increased 140% since the company went public in 2020. While the shares have been fast out of the gate, they currently trade at 18 times forward earnings, which is reasonable and in line with other stocks. Unlike the other more diversified miners on this list, there is no dividend payout with MP Materials.

On the date of publication, Joel Baglole 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 Publishing Guidelines.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

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The post The Next Gold Rush: 3 Rare Earth Metals Stocks to Buy Now appeared first on InvestorPlace.

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Fortune Business InsightsBHP GroupBHPLynas Rare EarthsLYSDYLYSDYVale SAVALEMP MaterialsMP