Rare Earths Are the Next Nvidia-Level Play: 3 Stocks to Buy

Brazil just cracked open one of the biggest resource opportunities on the planet. Now, for decades, it has been sitting on the world's second largest rare earth reserves. Well, China dominated a market estimated to be worth $15 billion per year and growing rapidly. Now, Brazil is finally moving to unlock them, and billions [clears throat] of dollars could start chasing this story. But here's where investors are making the wrong move. Most people are looking at the obvious names like MP Materials, the only major operating rare earth mine in the US. And while the logic might be sound here, the data just doesn't add up. So I ran the numbers on MP and two other obvious plays. And all three are flashing huge warning signs. But meanwhile, I've also found three companies sitting directly in the path of this critical materials shift that most investors aren't connecting to this story yet. So, in this video, you're going to get three different things. You're going to get the backstory on why this catalyst matters. You're going to get an important warning about the obvious names attached to this trade and three stocks that honestly have better prospects. And the third might be the best setup of all. It's a growing company that is still cheap and the fundamentals are sterling. And that's the kind of stock I want to find before everyone else connects the dots. So, I'm going to be saving that one for last. But before we get into it, feel free to hit the like button below. It helps YouTube push this kind of data driven breakdown to more investors just like you. Now, last week, Brazil's Senate approved a landmark bill to regulate the exploration of critical and strategic materials, including rare earths. The lower house had already passed it back in May by a wide margin. So, this was the last legislative hurdle. It now goes to President Lula, who is expected to sign it. Now, why does this all matter? Because Brazil holds the second largest rare earth reserves on the planet behind only China. And until now, there was really no real legal framework for developing them. The resource was there, but the rules weren't in place yet. So, here's what the bill actually does. And and I want to walk through this because the details tell you how serious Brazil is about this. Number one, it creates a mineral activity guarantee fund with two billion hay eyes from the federal government, which is roughly $391 million to back projects tied to critical mineral production. Number two, it sets up 5 billion heis in tax credits over 5 years, which is close to a billion dollars specifically for processing and refining these minerals inside Brazil. And that's the key word here, processing, not just digging up and shipping out. Now, number three, it creates a national council for critical and strategic minerals that will pick priority projects to receive that support. Now, Lula has been very direct about the goal here. He said, "Brazil is not going to repeat what happened with silver and gold in Latin America, where the raw materials left and the value went somewhere else. This time, Brazil wants to be the big winner. Now, here's some context on why the whole world is actually watching this. China currently dominates the global rare earth supply chain, and it has shown it's willing to use that dominance as leverage in trade disputes. Rare earths are in everything, smartphones, EVs, solar panels, wind turbines, jet turbines, missile guidance systems. If you're a western manufacturer or a defense contractor, having one dominant supplier is actually a strategic problem. So, the US and its allies have been scrambling to find alternatives. And Brazil, with the second largest reserves on Earth, and a government that now wants to build a domestic industry, is the most credible new supplier to emerge in years. Lula and President Trump discussed exactly this at the White House back in May. But, and this is important, a legal framework is not a mine, right? Getting from a signed bill to actual production takes years. There is environmental push back, especially for deposits near the Amazon. And one Brazilian business professor warned that putting a political council in charge of picking projects adds uncertainty for investors. So that gap here between the headline and the reality of how to make this happen is exactly why the obvious stocks are actually dangerous right now. Now before we get into that, I should also mention that our editor-inchief discusses stock market news and his stock picks in detail during his free weekly live training. You can join him every Monday live for free, but you do have to register to join. So, if you want to, just scan the QR code on the screen right here or go to wall streetzen.com/live to sign up. Now, there are three stocks that are getting all the attention in this story. One is MP Materials, ticker symbol MP, which is the biggest American rare earth miner. The other is Energy Fuels, ticker symbol UU, the uranium company that pivoted hard into rare earth processing. And then the third one is USA rare earth which is ticker symbol USA which just spent almost $3 billion buying a rare earth mine in Brazil itself. So these are really the huge plays and if you've searched rare earth stocks this week those are probably the three names that came up. But I'm about to explain why none of them are buys right now. So, I ran all these stocks through our Zen ratings system, which is a quant system that grades every stock an Agrade to an F-grade based on 115 factors across seven different categories. Now, an Agrade is a strong buy recommendation, and an F-grade is a strong sell recommendation. You can also see a stock's specific strengths and weaknesses via the seven underlying component grades. So, first up is MP Materials, ticker symbol MP. And its Zen rating, well, it's a D or a sell recommendation. And it ranks in the bottom 18% of all the stocks that we cover. And if we look at the component grades, and despite a few points of light here, you'll see why it earns this low rating. It is in the top 9% for growth. So, the growth story is real here, but it's in the bottom half of greater than 4600 stocks that we track for basically everything else. It's in the bottom 24% for momentum. It's in the bottom 21% for value. It's actually in the bottom 15% for sentiment, the bottom 14% for financials, and the bottom 11% for safety. And our proprietary AI factor actually puts it in the bottom 5% of all stocks. So, in plain English here, the story is great, but the stock is expensive, volatile, and the numbers underneath it don't really support the hype yet. Second up is Energy Fuels. Again, ticker symbol UU U. Zen rating, also a D, a sell recommendation, and it's in the bottom 18% of all stocks. And it's the same pattern here. It is in the top 24% for growth, but then it all falls apart. It's in the bottom 25% for value, the bottom 21% for financial, the bottom 20% for sentiment, the bottom 17% in our AI factor, the bottom 16% for momentum, and the bottom 11% for safety. And when the momentum and the analyst sentiment are both weak on a stock that's in a hot sector, that tells you the market has already looked closely and is not convinced. And third is USA Rare Earth. Again, ticker symbol USA. And this one is directly tied to the Brazil story itself. Now, back in April, USA Rareear agreed to pay about $2.8 billion for Sarah Verde, which owns a rare earth mine and processing plant in Brazil. So, you would think this would be a pure play on the news, but the Zen rating itself is another D, and it's honestly a low D. This stock ranks in the bottom 6% of everything that we rate. Growth is its only bright spot in the top 32%, but everything else is near the very bottom. It's in the bottom 37% for momentum, the bottom 8% for sentiment, the bottom 7% for financials, the bottom 5% for value, and the bottom 2% for both safety and the AI factor. That's a stock priced for a future that is years away with almost nothing underneath it today. So, here's my take. The rare earth theme is real. The Brazil news, it is real, but the pure plays are trading on hope. And our system is telling you the risk is really just not worth it right now. So, let me show you a better way into this trade. And if you're getting value for this type of video, consider subscribing to the channel. We do this kind of grounded datadriven research every single week, and I'd love to have you back for the next video. All right, it's time for our first real stock pick. All right, my first pick is going to be Materion, ticker symbol MTRN. This is a B-rated buy recommendation stock that ranks in the top 13% of all stocks that we cover. This is a picks and shovels way to profit from the west's push to secure critical mineral supply chains. Now, materion makes specialty alloys and engineer materials used in semiconductors aerospace defense and energy. That puts it directly in the path of the rising demand for strategic materials produced outside of China without having to bet on a single mine or a mining project. And the growth is actually already showing up here. Materion just posted record quarterly sales and profitability, its highest aerospace and defense sales ever, a record backlog, and raised its fullear outlook. For investors, that means the critical material story is not just a future catalyst. It's actually already feeding into the numbers. And Wall Street is just waking up to this one. The stock has now gotten two new strong buy recommendations in the past month, both which carry an upside target of greater than 25%. And I already mentioned the overall B or buy recommendation from our Zen ratings. And if you look at the component grades, you can see the strength stacking up here. In almost every area of review, it ranks in the top third or better. It's in the top 24% for safety, the top 17% for growth, the top 14% on that AI factor, the top 13% for momentum, and the standout here is sentiment. It's in the top 7% of all the stocks that we track. That means Wall Street analysts are steadily raising their expectation, which is usually what you see before a stock's next leg higher. Now, the one soft spot on this stock is value, where it sits in the bottom 26%. After a big run this year, you're not getting the stock cheap necessarily, but it does offer among the safer ways to play the critical materials theme and it's already executing at record levels. Our pick number two here is going to be Tech Resources, ticker symbol TE CK. This is a B-rated stock, a buy recommendation that ranks in the top 11% of all stocks that we cover. And this is a broader way to profit from the critical minerals buildout. Now, tech is a major copper and zinc producer, and copper is being pulled by many of the same forces driving rare earths. Electrification, defense spending, data centers, grid upgrades, and pushes to secure supply outside of China. So, let's look at what the business is actually doing here. Over the trailing 12 months, tech brought in about $10 billion in revenue and $1.8 billion in earnings. That's a profit margin of nearly 18% which is honestly a healthy number for a minor. Earnings are up more than 700% year-over-year. And I want to be honest about that figure. It is measured against a weak comparison year. So don't necessarily be attached to that number. But the number I do care about is the longer term trend here. Over the last 5 years, tech has grown earnings at roughly 71% a year. The average for its industry over that same stretch is basically flat. And the US market average is about 29%. So this is not a company that just had one good quarter. It's been compounding earnings faster than its peers for half a decade. Now the bigger catalyst tech is in the middle of a merger of equals with Anglo-American. That combined Anglo Tech would become a global critical materials powerhouse with more than 70% of its business tied to copper. And because this is a stock-forstock deal, tech shareholders keep ownership in the combined company. And the upside does not simply end with a cash buyout. Now, I'll be real with you here. Wall Street hasn't fully picked up on this story yet. Analyst coverage on tech is very thin. But this is exactly where the Zed ratings earn their keep because our system looks at 115 different factors, not just what a couple of analysts said six months ago. Now, the component grades are picking up strength where it matters most. Safety is the weak link here in the bottom 45% which comes with the territory for a cyclical minor going through a major merger. But look at all the rest here. Top 32% for value, top 32% for financials, top 31% for growth, top 19 for sentiment, top 18% on the AI factor, and stand out here is momentum. It's in the top 5% of all stocks. And when a stock is already trading strongly and the fundamentals are improving underneath it, that's a combination that our system likes the most. Now, there is one date to circle here on the calendar. Tech reports next earnings on October 28th. With copper demand where it is and the merger moving forward, that report is the next real checkpoint in this story. Now, for investors, tech offers exposure to long-term copper demand, plus the potential upside of owning part of one of the world's biggest copper producers. So, it's a buy rated way to play the critical materials story without betting everything on a speculative rare earth minor. So, that's pick number two. Now, before we get into the last stock, one quick thing. If you want to stay one step ahead of the markets, then join us live every single Monday. That's when we share updated market outlook and trading plans to outperform. This is also when my YouTube co-host and our editor-inchief Steve Wrightmeer shares his trade of the week based on our proven Zen ratings quant model and his greater than 40 years of investing experience. Now, it's a free event, but you do need to register to join. So, just go to wall streetzen.com/live. Click the link in the description below or scan the QR code on the screen right here with your phone. You could even just pause the video for a moment. Sign up and we will see you on Monday. All right. And now the stock that I teased at the top of this video. Pick number three is going to be SQM, which is ticker symbol SQM. It has a Zen rating of an A, a strong buy recommendation, and it ranks in the top 4% of all stocks in our system. That means that fundamentally speaking, it ranks higher than 96% of all other stocks regardless of industry or market cap. Now SQM is the Chilean lithium giant. It's one of the largest lithium producers in the world operating in the Solar Deakama and is roughly a 22 billion dollar company and it's the most direct way I know to play the Latin American critical material story that Brazil just put on the map. Now here's the connection. Brazil's bill is about turning Latin America into a serious non-Chinese source of minerals that power the energy transition. SQM is basically already that. It has a partnership with Chile's state copper company, Codelo, and that extends its Atakama lithium operations all the way out until60. And earlier this year, SQM raised its lithium sales forecast with management pointing to a tight balance between supply and demand and strong demand from battery storage systems. Now, let's look at the actual numbers here because this is where it gets very interesting. Lithium prices crashed after their 2023 peak and SQM's revenue came down with them. Last fiscal year, revenue was about $4.6 6 billion, roughly flat, and earnings were about $588 million, down about 14%. So, this is a company that just came through the bottom of a brutal cycle, honestly. Now, here's what I want you to notice. It actually stayed profitable the entire way through with a 13% profit margin at the bottom of the cycle. Now, zoom out. Over the last 5 years, SQM has grown revenue about 20% a year, nearly four times its industry average, and ahead of the US market. Earnings have grown about 27% a year over the same stretch, more than three times the industry average. And over 10 years, earnings are actually up more than 145%. So, this is a company with a proven track record of compounding through the cycle, and it's now on the other side of the trough with rising guidance. Now, the stock has already started to move. It's up more than 70% over the past year, but Wall Street is still split here. As of the week that I'm recording this, six analysts cover SQM. Two say strong buy, one says a buy, two say to hold, and one actually says sell. That nets out to a consensus buy recommendation. Now, the average price target sits at around 15% above current levels. And the most bullish target on the street from Scotia Bank is roughly 36 above where the stock trades today. The most recent action was Cityroup upgrading SQM to a strong buy recommendation in late August. So the tide really is turning here, but half the street is actually still on the sidelines, which brings me to the component grades, and this is where SQM really separates itself from the pack. Now, the one area where it is below average is sentiments in the bottom 39%, which is exactly what you would expect with a split Wall Street recommendation. It means Wall Street really hasn't fully caught on yet. And honestly, that's what I want to see in a pick tied to a story that just broke. Now, everything else is really strong here. Top 24% for momentum, top 24% for safety, top 15% for growth, top 15% for financials, top 11% on the AI factor. And the standout here is value. you. It's in the top 6% of all stocks. So, you're getting a growth company that our system actually sees at a reasonable price. That's extremely rare in this sector. So, honestly, to wrap up SQM here, it's the best overall rating of the top three. It's the top 6% in value, the top 15% in growth, has a 5-year track record of growing three to four times faster than its own industry, and a partnership that's locked through. And the Wall Street opinion is only just starting to come around here. So, that's my top pick on this specific news. So, let's pull it all together here. Brazil just took a real step forward toward becoming the world's second major rare earth supplier. That's a really big deal, but don't let a headline push you into a D-rated stock. Here's what I'm watching from here on out. whether Lula signs the bill, it's important, which projects the new council puts at the front of the line, and whether any US Brazil supply deals get announced. Those are the catalysts that turn this from a story into an actual production. In the meantime, Materion Tech and SQM give you exposure to that same trend backed by our ratings instead of just hype. And if you want to explore more opportunities within the rare earth space, be sure to check out my recent video detailing this multi-billion dollar catalyst. You can see all the details on the screen right here.