Looking for help catching some z's? If you've asked for sleep aid suggestions, it's possible someone has recommended magnesium. But the mineral's importance -- and the reason why it's appearing on investors' radars -- transcends its health benefits.
Found in various metal alloys, such as aluminum and copper, magnesium is an important material in industrial applications. Additionally, the compound magnesium chloride is frequently used in de-icing roadways and as a component of fertilizers.
Because it's vital to the success of the aerospace, defense, and steelmaking industries -- to name a few -- magnesium plays a critical role in the well-being of the United States. Consequently, the United States Geological Survey has placed it on the 2022 Critical Minerals List.
For all of these reasons, it's unsurprising that investors looking to fortify their portfolios with a critically important material are searching for magnesium stocks.
Best Magnesium Stocks to Buy
3 Best Magnesium Stocks to Buy in 2024
Digging into the various metal and materials stocks, investors interested in gaining magnesium exposure will find that there's not a great one-stop option. Although pure-play magnesium stocks are off the table, investors do have other viable options.
| Company | Market cap | Description |
|---|---|---|
| Compass Minerals (NYSE:CMP) | $1.02 billion | Supplies essential minerals such as salt, lithium, magnesium, and potassium for fertilizer. |
| Kaiser Aluminum (NASDAQ:KALU) | $956 million | Produces a variety of aluminum products. |
| Luxfer (NYSE:LXFR) | $236 million | A leading manufacturer of aluminum high-pressure gas cylinders and other specialty products using magnesium alloys and carbon composites. |
1. Compass Minerals
1. Compass Minerals
A producer of various materials, Compass Minerals operates two business segments -- salt and plant nutrition. In the salt segment, Compass Minerals sells sodium chloride and magnesium chloride (both brine and flake) to customers in North America and the United Kingdom. Through the plant nutrition segment, Compass Minerals sells potash -- a main ingredient in fertilizer for agriculture.
The salt segment accounts for the lion's share of the company's finances. In 2022, sales in the salt segment represented 82% of the company's revenue.
In the near future, magnesium will likely play an increasingly important role in the company's finances. Making a $45 million equity investment to complement a previous investment of $5 million, Compass Minerals now has a 45% ownership stake in Fortress, a developer of environmentally-friendly fire retardants. Compass Minerals will provide Fortress with magnesium chloride from its solar evaporation facility in Ogden, Utah.
Unsurprisingly, management is enthusiastic about the potential in the partnership with Fortress. On the first quarter 2021 conference call, Kevin Crutchfield, CEO of Compass Minerals, addressed Fortress, stating "the efficacy of their retarded material using our [magnesium] chloride as the base retardant, coupled with its enhanced environmental sensitivity, we think it will be a very inviting product to be on the marketplace."
The company's sole asset that supports magnesium chloride production, the Ogden facility has an annual production capacity of 750,000 tons, and it has an estimated 95 million tons in reserves.
Besides the partnership with Fortress, the company's expansion into lithium production represents another growth opportunity. Currently, Compass Minerals is developing a lithium production project for battery-grade lithium at the Ogden facility. Management expects lithium production to begin in 2025, and the project has already garnered interest from a big name in the auto industry.
In July 2022, Compass Minerals and Ford signed a non-binding agreement with Ford regarding the supplying of battery-grade lithium from the facility.
2. Kaiser Aluminum
2. Kaiser Aluminum
Don't let the name fool you. Although aluminum is clearly its focus, magnesium also plays a major role in Kaiser's business. Since its founding in 1946, Kaiser has developed into a leading aluminum manufacturer, with 13 production facilities located across the United States. In addition to copper, zinc, and silicon, Kaiser uses magnesium to alloy with aluminum, creating products for the various end-markets the company serves including (but not limited to) aerospace, automotive, and food and beverage packaging.
The magnesium alloys that Kaiser offers are used in a variety of industrial applications. Besides air cylinder tubing, the company manufactures a magnesium/silicon alloy well-suited for electrical bus conductors and architectural applications. Another of the company's magnesium alloys is largely used in hydraulic tube applications, thanks to its corrosion resistance and good weldability.
Magnesium plays an important role in the company's operations. In 2021, for example, Kaiser faced an unexpected decline in deliveries from a key supplier, leading the company to declare a force majeure at its rolling mill facility in Warrick County, Ind. This resulted in Kaiser reducing production of beverage and food packaging products.
The company has overcome the magnesium supply challenges, however, and management contends that it has diversified its supply of magnesium. In its 2022 10-K, Kaiser said that in September it lifted the "force majeure declaration and have now sourced Warrick's magnesium requirements through 2023 and beyond."
Besides magnesium-minded investors, income investors will also find Kaiser alluring. The company has demonstrated a steadfast commitment to rewarding shareholders with a consistently rising dividend. From 2012 through 2022, Kaiser has increased its dividend at a compound annual growth rate of 11.9%.
3. Luxfer
3. Luxfer
From fuel for vehicles to air for firefighters, Luxfer is a leading manufacturer of gas cylinders used in multiple applications. In fact, the company brands itself as "the world's largest manufacturer of aluminum high-pressure gas cylinders." While the company's gas cylinders business is considerable -- on average, about 45% of annual revenue over the past three years -- it's Luxfer's other operating segment, Elektron, where magnesium is a focus.
The company manufactures lightweight, corrosion-resistant and heat- and flame-resistant magnesium alloys that are used in several industries, including aerospace, healthcare, and energy. Luxfer also produces magnesium powders suited for the military and emergency-relief organizations.
Luxfer conducts its magnesium production at various facilities across the United States and in the United Kingdom. In Pennsylvania and New Jersey, the company manufactures magnesium powders; it produces magnesium sheets at its Illinois facility and magnesium alloys at a facility in England.
Over the past five years, Luxfer has achieved steady growth throughout its income statement. From 2017 to 2022, for example, Luxfer has seen revenue and adjusted diluted earnings per share (EPS) both rise at compound annual growth rates (CAGR) of 4% and 5.7%, respectively. Turning to the balance sheet, investors will find that the company is in good financial health, taking a conservative approach to leverage. At the end of 2022, Luxfer had a net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio of 1.1.
Looking ahead, management forecasts revenue rising 6% to 10% from 2022 to 2023. With regards to adjusted EPS, on the other hand, management isn't confident that the company will achieve comparable growth to the top of the income statement. Luxfer reported adjusted EPS of $1.35 in 2022, and management forecasts adjusted EPS of $1.15 to $1.35 in 2023. But that's not to say that management doesn't see growth further down the road. By 2025, the company predicts adjusted EPS will top $2.00.
Are magnesium stocks right for you?
With the metal playing a critically important role in a diverse range of industries, it's no wonder that materials-minded investors are on the lookout for ways to gain magnesium exposure. Patient investors who are interested in packaging lithium exposure with their magnesium stock should consider Compass Minerals. However, those particular to increasing their passive income while picking up a magnesium stock will want to dig into Kaiser Aluminum. People looking for the greatest magnesium exposure, though, will want to take a closer look at Luxfer.
