Why USA Rare Earth Stock Powered 76.9% Higher in April

It's been some ride for USA Rare Earth (NASDAQ: USAR) investors so far this year. From the time it began trading on March 14, when it completed its business merger with a special purpose acquisition company (SPAC), through the end of March, the stock had plunged 68%.

But USA Rare Earth stock turned things around in April, and shares skyrocketed 76.9%, according to data provided by S&P Global Market Intelligence.

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Rare earth elements took center stage last month as President Donald Trump signaled that his administration was intent on shoring up the nation's supply of the critical elements. This is a boon for USA Rare Earth, which is developing a rare earth magnet manufacturing facility in Oklahoma.

Image source: Getty Images.

Digging into President Trump's interest in rare earth elements

In mid-April, President Trump signed an executive order that started an investigation into whether the U.S. reliance on imports for rare earth elements and other critical elements could jeopardize the nation's security. Consequently, USA Rare Earth stock jumped to the forefront of investors' radars as the company is committed to producing rare earth elements from its asset in Texas. Furthermore, the company plans on commencing operations at a rare earth magnet manufacturing facility in the first half of 2026.

Rare earth elements emerged as a major point of focus last month as China, striking back against Trump's announced imposition of tariffs, suspended exports of seven rare earth elements.

A scenario where there's a constrained supply of rare earth elements is of great concern to a variety of industries. Made from alloys of rare earth elements, rare earth magnets are an essential component of manufactured products used in defense applications to electric cars to smartphones.

According to the U.S. Geological Survey, about 70% of the rare earth elements that the U.S. imports come from China.

Should investors power their portfolios with USA Rare Elements right now?

It's unsurprising that shares of USA Rare Earth jumped as much as they did last month, considering how rare earth elements emerged as a striking point of contention between the United States and China. If you're considering picking up shares, however, you should temper your expectations because it's not clear that the company will immediately benefit from recent developments.

Even though the stock has fallen about 15% since the start of May, as of this writing, investors should remain circumspect. The company is still in the pre-revenue phase of its development, so there's a fair degree of risk associated with an investment. As such, only those with a high tolerance for risk should consider initiating a position at this point.

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Scott Levine has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.