Should You Buy USA Rare Earth While It's Below $20?

Rare-earth stocks -- that is, companies who mine or process any of the 17 silvery-white heavy metals crucial for tech and green energy -- have been some of the market's biggest winners over the last year.

Just consider this: Since April 2025, the VanEck Rare Earth and Strategic Metals ETF, which includes MP Materials, has generated over 5 times the return of an index fund tracking the S&P 500.

One rare-earth stock that is noticeably missing from that popular metals exchange-traded fund (ETF), however, is USA Rare Earth (NASDAQ: USAR). Although smaller than its rival MP Materials, USA Rare Earth controls an exceptionally rich rare-earth deposit in Texas, which is becoming strategically important to the U.S. government, as evidenced by a pending $1.6 billion funding package.

A lot of good news has surrounded this mining stock, yet it still trades about 45% lower than its 52-week high. With the average price target (about $32 a share) implying a 70% gain from today's levels, is USA Rare Earth an obvious buy?

A compelling story, with plenty of risks

In a nutshell, USA Rare Earth owns a huge mountain in Texas full of rare-earth metals, the kind that make high-performance magnets. It's building a magnet factory in Oklahoma, which it plans to open later this year, and it also has a research facility in Colorado.

For national security purposes, the U.S. government wants USA Rare Earth to succeed -- scratch that, it needs companies like USA Rare Earth to succeed to escape dependence on Chinese exports. That urgency, in turn, has drawn serious capital and attention to the company, to the tune of about $3.1 billion in total public and private funding.

Of course, USA Rare Earth isn't the only U.S. rare-earth miner getting attention. MP Materials, which actually has an operating rare-earth mine, inked a $400 million deal with the Department of Defense and a $500 million deal with Apple.

Image source: Getty Images.

But USA Rare Earth and MP Materials aren't synonymous. In fact, although MP has a head start on production, USA Rare Earth might have the more valuable deposit.

The Round Top deposit is rich in terbium and dysprosium, two of the scarcest and most expensive metals in the world. These metals are currently priced at about $4,029 and $930 per kilo, respectively. Meanwhile, MP's Mountain Pass is enriched with lighter rare earths, like neodymium and praseodymium, which are both priced around $210 per kilo.

Granted, MP still has the upper hand in production: It's mining rare-earth metals and producing magnets, whereas USA Rare Earth hasn't started either. That might be why MP carries a roughly $11 billion market value, whereas USA Rare Earth's is about 3 times lower, at $4 billion.

The war in Iran, however, has accentuated the importance of both companies. The U.S. is rapidly depleting munitions, and China has already refused to export its rare-earth materials for use by foreign militaries. The clock is ticking for a U.S. rare-earth miner to step up and fill the gap.

Even so, USA Rare Earth is a speculative stock, and should be treated as such. Adding a few shares at today's price could yield a gain over the long run, but only if it can turn potential into production.

Steven Porrello has positions in USA Rare Earth. The Motley Fool has positions in and recommends Apple and is short shares of Apple. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.