USA Rare Earth (USAR -0.38%) went public in March through a merger with Inflection Point Acquisition Corp., a special purpose acquisition company (SPAC). Since market close on the day of the company's public debut, the company's share price has actually fallen 14% despite a gain of roughly 15% for the S&P 500 and a gain of 21% for the Nasdaq Composite across the stretch. On the other hand, USA Rare Earth's share price is up approximately 74% over the last three months of trading.
USA Rare Earth has posted big gains over the past several months thanks to moves from the Trump administration designed to strengthen the U.S.'s abilities to produce rare-earth minerals domestically. China currently accounts for roughly 70% of the global rare-earth mineral supply, and the U.S.'s increasingly adversarial relationship with the country has increased the importance of finding other mineral sources.
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Can USA Rare Earth stock triple your investment over the next five years?
Economic and geopolitical dynamics between the U.S. and China will likely play a substantial role in USA Rare Earth's stock performance over the next five years. Along those lines, the company's valuation has actually faced some pressure recently due to signs that the two countries could reach a trade agreement that would help the U.S. secure future access to Chinese mineral supplies. A recent report that Chinese mineral shipments had returned to their highest levels since January also resulted in sell-offs for the stock.
Given the importance of domestic mineral sourcing, I think USA Rare Earth's odds of tripling over the next five years look favorable from a risk-reward perspective. That's even as recent developments suggest some improvements in U.S.-China relations. Despite the high level of risk that comes with being a pre-revenue business which is heavily subject to permitting and regulatory approvals, the stock also offers defensive benefits along what appears to be the single-biggest vector for geopolitical risk over the next five years.
