Investments in MP Materials
Nikola Tesla famously remarked that while technologies may eventually fade, the essence of rotating magnetic fields will always be significant. Today, we’ve incorporated a 3% position in MP Materials, known by its ticker “MP,” into our active OPPS portfolio, along with a 2% stake in our tactical alpha growth portfolio. MP Materials stands out as the only major U.S. producer of rare earth minerals, providing 15% of the global supply of rare earth oxides, crucial for high-strength permanent magnets.
According to their website, MP Materials emerged by acquiring the Mountain Pass site in California when it was dormant and facing closure. Their mission has been to rejuvenate the American supply chain for rare earth elements. Magnets play a pivotal role in powering everything from electric vehicles and wind turbines to smartphones and defense systems. The current administration is keen on bolstering domestic supply chains for these vital minerals, especially since China currently holds a dominant position globally, raising concerns over supply security.
In July, the Biden administration committed $400 million in preferred stock and warrants, along with $1 billion in financing from JPMorgan and Goldman Sachs, aimed at establishing a new facility for producing rare earth magnets. Additionally, the administration recently revealed plans to bolster the U.S. strategic uranium reserve. While uranium isn’t connected to MP’s operations, the move underlines Washington’s commitment to enhancing its domestic energy and mineral supply chains.
Turning to the stock performance, we notice that in 2022, the price plummeted from $60.25 down to below $10. Recently, it seems to have set $60.25 as a support level after previously acting as resistance. Revenue forecasts suggest an impressive rise to $706.55 million by 2026, which would mark over 150% growth this year. Earnings projections stand at 70 cents per share, reflecting a considerable uptick of 243% for the same period. This optimistic outlook should help maintain the support floor around $60.25.
Examining daily charts, stocks traded above $80 in August but returned to the earlier breakout level of $60.25. This level, alongside the blue 50-day moving average, could provide adequate support. I’m personally considering adding a half-sized position at this support level for MP, and should it break above $75, I might increase that stake while adjusting the stop loss. If the entry point at $66 doesn’t pan out, I’ll think about trimming my position if the stock drops below $60.
Looking ahead, analysts anticipate revenue growth of 89% and 146% over the next two quarters. The power of active portfolio management involves blending technical and foundational analytics, maintaining a disciplined risk management approach that aims to yield better returns compared to simple index benchmarks. MP Materials exemplifies this strategy, and we maintain a 3% allocation within our active OPPS portfolio.
