Why USA Rare Earth Stock Popped Today

Key Points

• The Pentagon is investing $400 million in MP Materials to promote rare-earth mining.

• USA Rare Earth is a second miner that might -- might! -- receive a similar investment.

• Unlike MP Materials, however, USA Rare Earth is not actually yet producing rare earths.

• 10 stocks we like better than Usa Rare Earth ›

Rare-earth miner MP Materials said this morning the U.S. Department of Defense is making a big investment in its rare-earth magnets business, sending its stock price up 60% in morning trading. Now, investors in another rare-earths start-up, USA Rare Earth (NASDAQ: USAR), are wondering if their company might be next in line.

It's pure speculation at this point, but still good enough for a 15.9% increase in share price through 12:05 p.m. ET.

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Image source: Getty Images.

Sovereign wealth funds can be big business

The Pentagon agreed to buy all the rare earth magnets MP can produce over 10 years, guaranteeing minimum prices no matter the market price, and making a $400 million investment in MP preferred convertible stock. This appears to be the first investment in a new sovereign wealth fund the Trump administration has discussed establishing, aimed at securing government access to "critical minerals."

USA Rare Earth may hope its company will receive a similar deal, but there are big differences between these two. The most important difference: USA Rare Earth is way behind MP Materials in its development as a commercial venture.

Last year, MP Materials produced 45,455 metric tons of rare-earth oxides in concentrate form, 1,294 metric tons of NdPr oxide, and recorded $61 million in revenue. USA Rare Earth, in contrast, had revenue of $0.

Is USA Rare Earth stock a buy?

Granted, it's possible the Trump administration will invest in USA Rare Earth stock to accelerate its commercial development. I'd even go so far as to say it's likely, to create redundancies in the supply chain and ensure price competition. But it's not certain.

The only thing that's certain right now is that MP Materials stock is a much safer investment than USA Rare Earth stock.

Should you invest $1,000 in Usa Rare Earth right now?

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.