We have discussed rare earth player LYC several times over recent years, although the stock has never been included in our Active Growth portfolio. The stock and sector have struggled since 2022 in a very similar fashion to lithium, as the NdPr price has been under pressure due to a weak Chinese economy. However, we believe China’s economy is improving, which would provide a solid backdrop for Lynas, i.e. LYC’s earnings will follow if/when prices recover, aided by the added capacity on the back of the Malaysia licence deal sealed last October. Also, with ~6.5% of LYC shares being held short, there is plenty of scope for a short covering squeeze higher if corporate action starts to unfold.
Despite weak NdPr prices, we remain positive on LYC over the medium-term because of its first-mover advantage and, in a similar fashion to lithium, believe we are close to the bottom of the cycle. With elevated geopolitical risks and the continued prioritisation of Western supply chains, we can understand Gina’s move into LYC. The stock surged +5.9% yesterday following the news of her buying.
- We exited LYC at higher levels last November for our Emerging Companies Portfolio, after which it initially fell ~19% to test the $5.50 area.
- The stock is again looking interesting from a risk-reward perspective; a speculative “play” with a move towards $8 is looking possible.
MM is bullish LYC around $6.50
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