With recent rumors regarding a buyout of Lucid Motors circulating through the investing world, investor interest in the usual suspects of electric vehicle (EV) stocks has been accelerating.
But smart investors know that sometimes it's not the most familiar faces that offer the greatest investment opportunities. That's why EV-focused investors would be wise to consider rare earth metals stock MP Materials (MP -0.76%) to power up their portfolios.
Digging into the deets
When asked to identify important materials for manufacturing EVs, most people will provide the same response: lithium. But rare earth metals also play a critical role. These metals have particular electromagnetic properties that help systems -- electric motors, drivetrains, and braking to name a few -- in EVs to work more efficiently and ensure greater durability.
It's not easy, however, for companies to identify deposits where these metals are located. This is part of the allure of MP Materials, which distinguishes itself as owning and operating the only integrated rare earth mining site in North America as well as the largest producer of rare earth materials in the Western Hemisphere.
Rock solid financials
In addition to occupying an important niche of the EV supply chain, MP Materials is attractive to investors thanks to its strong financial position. Since its initial public offering in late 2020, MP Materials has reported strong revenue and net income growth.
MP Revenue (Annual) data by YCharts.
Some skeptics may question the bottom-line growth since it's not unusual for mining companies to record non-cash charges on their assets, resulting in misleading earnings figures. Consequently, many investors favor the cash-flow statement to gauge a company's financial health. In this regard, MP Materials still shines, steadily generating operational cash flow.
MP Cash from Operations (TTM) data by YCharts.
A quick look at the company's robust balance sheet should further allay the concerns of cautious investors. After raising a large amount of capital through the sale of stock in 2021, MP Materials now has a net cash position of $587 million.The strong financial position is especially advantageous as MP Materials continues development of several growth projects. Through 2022, the company has funded growth capital expenditures solely from operating cash flow. Reassuring investors that the execution of the projects is going well, management commented on the Q3 2022 conference call: "Importantly, we remain on track with our projects from a schedule and cost perspective, but the timing of payments has been better than originally modeled."
Speaking of growth
Working to expand its rare earth elements offerings, MP Materials is optimizing its California facility to allow for the separation of rare earth elements from the mined concentrate, a project known as Stage II. In addition, MP Materials is constructing a rare earth, metal, alloy and magnet manufacturing facility in Texas that will also be capable of recycling. The company estimates that the facility will produce enough rare earth metals annually to support production of 500,000 EV motors. Already, MP Materials has found interest in these offerings. In December 2021, it signed a long-term supply agreement with General Motors for rare earth materials, alloys, and finished magnets.
The third project in the works is a heavy rare earth elements (HREE) processing facility -- the subject of the $35 million Department of Defense award. These HREEs will be used for defense as well as commercial applications.
Put a charge in your portfolio with MP Materials
From vehicle manufacturers to charging infrastructure companies to lithium producers, there are ample opportunities to invest in EV-related companies. And while a rare earth metals producer like MP Materials is far less common, it has the potential to provide market-beating returns in the long term.
Trading at about 24.3 times forward earnings, shares of MP Materials may not be a screaming buy, but they're certainly reasonably valued for a growth stock, retaining formidable competitive advantages.
