We recently compiled a list of the 8 Best Rare Earth Stocks and ETFs. In this article, we are going to take a look at where Freeport-McMoRan Inc. (NYSE:FCX) stands against the other rare earth stocks and ETFs.
Rare earth elements (REEs), which refers to 17 metals that are similar chemically, are surprisingly abundant in Earth's crust. However, their dispersion and geochemical properties make them difficult and expensive to extract, leading to them being called "rare."
REEs are important for a vast range of technologies, earning them the nickname "vitamins of modern industry." Apart from being irreplaceable for clean energy and consumer electronics production, REEs are also strategic for defense and aerospace engineering, the production of aircraft, missiles, satellites, and communication systems.
Hence, it is no wonder that the global rare earth metals market is valued at an estimated $5.65 billion in 2024. Analysts project this market to experience steady growth, reaching $8.63 billion by 2031. This is equivalent to a compound annual growth rate (CAGR) of 6.2% over this period, indicating a promising future for the industry.
China has been dominating the rare earth metals market for decades producing a staggering 240,000 metric tons last year, over five times more than its closest competitor, the United States, according to US Geological Survey data. China further maintains its control by processing around 90% of the world's rare earths into permanent magnets used in various technologies. In 2022, China accounted for 70% of global production of REEs. This dominance stems from a combination of factors, including historical geological exploration efforts, favorable mining conditions, and government support for the industry.
Brazil, along with other Western countries, is currently working towards breaking China’s dominance of this industry. Brazil has advantages like low labor costs, clean energy, and established regulations. However, challenges include low rare earth prices which have gone down 70%, technical difficulties, and getting funding. Despite these challenges, Brazil is making progress with its first mine in operation and increased government support for the industry. To jumpstart its rare earth industry, the Brazilian government allocated 1 billion reais ($194.53 million) in February to fund strategic mineral projects.
Other countries are also working towards diversifying the supply chain. In recent years, the United States has sought to mitigate risks related to the REEs’ supply chain. This includes restarting domestic mining operations, like the Mountain Pass site in California, and building processing facilities to avoid reliance on China. This objective of supply chain diversification has also led the US to secure deals with Vietnam on minerals and semiconductors.
Similar to the United States, the European Union (EU) is also actively promoting domestic extraction projects in countries such as Sweden, Finland, Spain, and Serbia. This is part of the EU's efforts to enhance its self-sufficiency in critical minerals, including rare earth elements.
Our Methodology
To shortlist the best rare earth stocks, we relied on Insider Monkey's database of 919 hedge funds as of Q1 2024 to analyze the hedge fund sentiment for each stock. We picked the rare earth stocks with the highest number of hedge fund investors. Furthermore, we included two of the best rare earth ETFs, chosen for their impressive 3-year returns. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A large open-pit copper mine with heavy machinery extracting minerals from the earth.
Freeport-McMoRan Inc. (NYSE:FCX) is a major mining company that digs for valuable minerals across three continents: North America, South America, and Indonesia. Established in 1987 and headquartered in Phoenix, Arizona, the company primarily focuses on copper, gold, and molybdenum, while also exploring other metals. Freeport-McMoRan Inc. (NYSE:FCX) ranks first on our list of the best rare earth stocks and ETFs.
Freeport-McMoRan Inc. (NYSE:FCX) is currently developing a geothermal heating system for its copper mines in Arizona. This sustainable heat source will improve copper recovery from previously mined materials. The project also includes improvements to the electrical grid for better reliability. The project has a total cost of $175 million and is expected to take 5-7 years to complete.
Freeport-McMoRan Inc. (NYSE:FCX) reported a strong Q1 2024 with adjusted EBITDA of $2.5 billion and operating cash flow of $1.9 billion. This positive performance was driven by a favorable copper price, averaging $3.94 per pound. The company highlighted efficient operations in the U.S. despite lower ore grades, while South American and Indonesian mines exceeded expectations. Capital expenditures were $800 million, excluding a $500 million investment in their Indonesian smelter project, which is on track for a June 2024 start.
Wall Street analysts are bullish on Freeport-McMoRan (NYSE:FCX), with an average price target of $53.86. This represents a potential increase of over 12% from the current price levels. Analysts' predictions range from a high of $60 to a low of $46 per share. The majority of the analysts (8 out of 14) have given the stock a “Buy” rating.
Overall FCX ranks 1st on our list of the best rare earth stocks and ETFs to buy. You can visit 8 Best Rare Earth Stocks and ETFs to see the other rare earth stocks and ETFs that are on hedge funds’ radar. While we acknowledge the potential of FCX as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FCX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
