I got a stock for you today that sits in a pretty sweet spot regarding the brewing global trade war. And it sits there all alone…
We’re all aware that China has used the last two decades of globalized trade to corner a whole bunch of markets: lithium refining, cobalt refining, EV batteries, solar panels, low-tech chips…there are more, it’s a long list…
We talked last week about Chinese automakers and their potential in the global marketplace, ex – Europe and the U.S. The U.S. and the EU are using high tariffs to effectively ban Chinese cars in order to protect less competitive legacy automakers, much like what’s been done to restrict Chinese steel and solar panels.
Most of the world does not have legacy automakers and welcome cheaper Chinese cars (and steel and solar panels). I’m not a big fan of Chinese stocks in general, but it looks like a pretty big opportunity for China’s best automakers.
We were also made aware during COVID that it's very risky to have supply chains running through China. Of course, that wasn’t exactly new information, but it wasn’t viewed as an excessive risk until disruptions actually happened and kicked off a global wave of inflation…
That’s when reshoring and friend-shoring supply chains really kicked into gear…
The Race is On
Spending to build new factories in the U.S. has surged over the last couple of years. And it’s great; solidifying America’s manufacturing base is long overdue.
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The problem is that much of this new capacity won’t be coming online in the immediate future. It takes a few years to build factories, install equipment, train workers, etc.
So any company that started the process before it was fashionable to do so has a head start…
Like the company I’m talking about today: MP Materials (NYSE: MP). If you’re already familiar with MP Materials, great…
The “MP” in the name stands for Mountain Pass – that’s the company’s rare earth mine in Southern California. MP Materials is America’s only significant rare earth miner.
The mine itself was acquired out of bankruptcy in 2017. Mining resumed in 2018.
A Dirty Business
Now, rare earth mining is a dirty business. The old model was to simply ship huge mounds of dirt containing rare earth minerals to China for processing.
The previous owner of Mountain Pass, Molycorp, recognized the benefit of moving up the value chain and refining its own ore. However, the expense of building the ore processing facility drove Molycorp into bankruptcy in 2015.
Fast-forward to today, and MP Materials is still shipping dirt to China, but not as much. Volumes shipped to China for refining should continue to fall as its own refining capacity increases…
Not only that, but in a pretty forward-thinking move, MP started construction on a rare earth magnet factory in 2022. That factory was financed in part by GM, and it is now operational.
Regardless of how the brewing trade war with China works out, MP Materials is in a pretty sweet spot.
Chart Wars
Over the weekend, Hammer and I are preparing to re-launch the Outsider Club YouTube channel, and this time with a special segment called Outsider Club’s Chart Wars. Be on the lookout for more news soon!
Every Sunday, Hammer will present a couple of charts for your investment pleasure.
Spoiler: I reviewed the MP Materials chart in our first episode, and I’m not going to repeat my entire spiel here, but I will share one important detail: I noted that I couldn’t rule out a drop to the 50-Day moving average (MA, gold line) for MP’s share price. That happened yesterday:
50-day moving average tests can act as springboards for a stock price. I’m betting that’s how it works out for MP Materials with a few deep-in-the-money call options.
Cheers,
Briton Ryle
Chief Investment Strategist
Outsider Club
X/Twitter: https://twitter.com/BritonRyle
