The $1.55 Billion Rare Earth Boom Could Create 2 Huge Winners

China controls roughly 60% of the world's rare earth mining and about 90% of processing. For years, that's given Beijing enormous leverage over minerals the Pentagon simply can't afford to lose access to. Now, the United States is making a major move to break that grip, shifting critical mineral supply chains toward Brazil. The last time Washington used this playbook, one rare earth stock exploded 60% in a single day. But the stocks that are getting all the attention this time, I think investors are actually looking in the wrong place. So, I found two stocks that look like much stronger ways to play this shift, including one that ranks number one in its entire industry. Now, before we get into it, a quick ask, if you like timely stock pick videos like this one, just hit the thumbs up button below. It lets me know to keep making more videos just like this. Now, listen, history doesn't repeat itself, but in rare earth minerals, it's starting to run. The Pentagon has backed a $1.55 billion financing package tied to Serra Verde, a rare earth mining operation in Goias, Brazil. Now, Serra Verde is the only large-scale producer outside Asia capable of supplying all four magnetic rare earth that modern defense and tech supply chains depend on: neodymium, praseodymium, dysprosium, and terbium. Now, the US government committed $750 million of its own money and locked in a 15-year purchase agreement with guaranteed pricing. And that matters because Washington ran a very similar playbook with MP Materials, ticker symbol MP, last year. They had government backing, long-term purchase commitments, and guaranteed prices, and that type of setup led MP Materials to jump 60% in a single day. Now, those same basic ingredients are showing up again as Washington races to build critical mineral supply chains outside of China. So, the obvious question here is, could this create another huge stock market winner or winners? Possibly. But I don't think the the obvious rare earth stocks here are where I'd put my money. So, let's actually talk about the three stocks that are getting the most attention from this story right now. MP Materials, which we just talked about, ticker symbol MP. Energy Fuels, ticker symbol UUUU. And USA Rare Earth, ticker symbol USAR. Now, I ran all three stocks through our Zen ratings, which is a 115-factor quant model that ranks more than 4,600 stocks in A to an F based on the traits most closely tied to future stock performance growth value momentum financials, safety, sentiment, and our own proprietary AI factor. Now, an A grade is a strong buy, but D and F stocks, the model would just say, "Please avoid these or sell them." And all three of those company names that I just mentioned, they failed the test. MP Materials is rated a D. That amounts to a sell recommendation. Now, growth in this company is actually rated at a B, but the financials and safety grades earn D grades, while our own AI factor comes in at an F. Now, again, with this stock, there could be some upside if the rare earth boom accelerates, but the fundamentals are just not strong enough for me to consider. Now, Energy Fuels, another D rating, a sell recommendation. And the weakness is a bit broader on this specific stock. Financials, safety, sentiment, and AI all earn a D grade. Again, it's an exciting story, but with a weak stock underneath it. And then there's US Rare Earth. Now, you might expect the company sitting right at the center of the story to be the obvious winner here, but it's not. Again, USAR earns a D grade, yet another sell recommendation from our quant model. And it ranks in the bottom 10% of more than 4,600 stocks that we track with F grades for both its safety and AI component grades. That's terrible. So, again, the three stocks that are getting the most attention from this rare earth boom, they're all three sell ratings. Now, could they still maybe rip higher on some headlines? Yeah, absolutely. And MP Materials already showed us what government backing can do to a stock. But, there's a difference between a stock that can spike and one that I would actually want to own. So, right now, these look more like lottery tickets than actual investments. What I would like to see is production turn into actual revenue, and that revenue turn into actual profits, and those improvements can actually start showing up in the fundamentals. Once it's there, then I'll take a look. But, until then, I'd rather look for companies that can benefit from the same massive shift in spending without taking on the weakest parts of the rare earth trade here. And I found two of those stocks. Now, before we dive in, I should mention that our editor-in-chief, Steve Reitmeister, he discusses stock market news and his own stock picks in detail during his free weekly live training sessions. You can join him live every single Monday for free. But, you do need to register to join, so just scan the QR code on the screen right here, or just go to wallstreetzen.com/live to sign up. So, there is another reason I went searching outside of the obvious names here. Mining and uranium are both F-rated sectors in general in our system right now. And a lot of these companies are still spending heavily to build production. The margins are thin, and debt can be very, very high. And their stocks often move more on commodity prices and headlines than the actual profits of the companies themselves. Now, again, that doesn't mean that rare earth is a bad story here. It's not a sector I'm going to completely avoid, but it means I want exposure to the trend through stronger businesses. So, So pick number one on my list. It's going to be a name that isn't a rare earth producer at all. And it's actually a titanium and specialty metals company, and that's actually the point here. Now, ATI is the company, ticker symbol ATI, and they make titanium alloys, nickel-based super alloys, and specialty steel that feed directly into the same defense and aerospace supply chains this entire catalyst is all about. Now, unlike mining or uranium, the industry ATI sits in metal fabrication actually carries an A grade in my system. So, the sector itself is healthy and positioned to catch the same wave of government spending, but without the weak fundamentals that we just walked through on those other three companies. And the numbers here for ATI back it up. Its most recent quarter posted earnings of $151 million up 27.7% from the prior quarter. Now, the trailing 12-month earnings are up 14 and 1/2% year-over-year. And looking ahead, analysts actually expect that to keep accelerating, forecasting 24.16% annual earnings growth, which actually outpaces the broader metal fabrication industry average. And Wall Street agrees on this stock as well. All seven analysts covering ATI currently have a strong buy recommendation, including Charles Minervino, a top 3% ranked analyst at Susquehanna. His target points to just under 30% upside potential, while the maximum forecast is over 30% upside. Now, the Zacks ratings also support the thesis here. ATI carries a Zacks rating of a B, which is a buy recommendation. Looking at those component grades, momentum is really the standout at an A grade, and growth, sentiment, safety, and financials all come in at B grades. And really, that's a strong combination. ATI has market-leading momentum, while solid grades for growth, financials, safety, and sentiment suggest there's real fundamental strength supporting the run here. Now, between the defense adjacent business, the earnings acceleration, and the unanimous Wall Street strong buy recommendation, ATI is a legitimate way to play this catalyst, even if the degrade on value means you're paying a little bit of a premium to buy this stock. But, I'll say ATI isn't even the one that I actually like best in this space. That one's coming up next. Now, if you do like stock talk like this video, I once again remind you just to check out Wall Street Zen's no-cost live training sessions. You can join our editor-in-chief Steve Reitmeister on Mondays. He doesn't just talk about what he's buying though. He's actually showing you how he's finding stocks so you can even do the same in the days ahead. He also shares his trade of the week, which combines the best of Zen ratings with his 40-plus years of investing experience. So, again, if you're liking content like this, I strongly recommend just pause the video for a second and scan the QR code on the screen right here to register for the live training session or go to wallstreetzen.com/live and I'll see you on Monday. All right, well, the second stock here also isn't a rare earth producer either. It's actually SQM, which is short for Sociedad Química y Minera de Chile. Now, please don't kill me on the pronunciation, but basically they are one of the world's largest lithium producers. Now, lithium isn't a rare earth, but it is part of the same push here. Now, the US and its allies are racing to secure supply chains for every critical mineral that used to run through China, not just the four magnetic rare earths we covered earlier. Now, SQM sits in Chile, not Brazil, so it isn't part of the Sierra Verde deal directly, but it's exactly the kind of allied non-China supplier this entire policy shift is built to support. And its industry, specialty chemical, carries an A grade in my system, the same pattern we're seeing across defense adjacent materials. And the fundamentals here hold up over time. Now, SQM's earnings have grown 145.12% over the past 10 years. And if you zoom into the 5-year window, earnings are up 26.93% per year, more than three times the specialty chemical industry average of 7.4%. Now, revenue tells a similar story here, up 20.29% per year over the last 5 years, beating both the industry average and the broader US market average. And after a rough stretch, revenue growth just turned positive again, up 1.05% over the last year. Now, it is worth noting that Wall Street is more split here than it was on ATI. Of the five analysts that are covering SQM, three recommended as a buy or a strong buy recommendation, and one has it as a hold, and the other one has it as a sell. However, it is worth noting that the most bearish recommendation is several months old, and it might not reflect the current reality for these shares. It's also worth noting that the more bullish forecasts are calling for a greater than 20% upside potential in the coming year. And the Zen ratings shine light where the analysts honestly do not. SQM carries a Zen rating grade of an A, a strong buy recommendation, and it's the number one ranked stock in the entire specialty chemical industry. Now, AI is the standout component grade here with an A grade, and value, growth, and financials all come in at a B. Now, momentum and sentiment still sit at a C, which is not too bad. And again, if all that sounds like alphabet soup to you, let me just state it simply. SQM looks strong under the hood, but it hasn't become a crowded momentum trade yet. That's actually the kind of setup you want before broader investor enthusiasm arrives. Now, one thing worth noting here, SQM's earnings are tied to lithium prices, which honestly spiked in 2022 and crashed really hard afterward. So, the shorter-term numbers still reflect that sort of hangover, even though the long-term trend actually points up. And that's really the pivot here. The stocks that everyone's piling into on this news don't actually hold up under the data, but there are two real ways to play this move. So, here's what exactly I'd be watching next. And real quick, if you are getting value from this video, consider subscribing to this YouTube channel. We do this kind of grounded data- driven research every single week, and I'd love to have you back for the next video. Okay, so, here's what I would watch next. Serra Verde's first deliveries under this deal are expected in the fourth quarter, [snorts] and that will be one of the first real tests of whether this US push away from China is actually translating from government announcements into working supply chains themselves. And if that happens on schedule, this theme could have a lot further to run. And honestly, I'm curious where you land on this. Would you rather own the headline rare earth stocks everybody's talking about or play this trend indirectly through stronger companies like the ones I mentioned today? Or maybe you have another stock that belongs on this watch list, leave it in the comments below, share with everybody so we can all learn. And if you like this kind of breakdown, connecting a sort of major flow of government or institutional money to stocks that could benefit, check out my recent video on the huge wave of sovereign money moving into space stocks and what it can mean for investors. You can check it out right here.