By JED GRAHAM

Rare earth stocks including MP Materials (MP) and USA Rare Earth (USAR) flashed buy signals on Monday as the war with Iran added to the urgency of rebuilding and expanding the U.S. missile arsenal. MP and USAR offered early entry opportunities as they moved clear of key support levels.

The live hostilities could last for four weeks, President Donald Trump said on Sunday and indicated on Monday that the "big wave" of the attack against Iran is still to come.

Military escalation comes as aerospace and semiconductor firms already faced shortages of yttrium and scandium, two of the seven heavy rare earth minerals that China restricted the export of last April. Meanwhile, prices for both light and heavy rare earth oxides have been on the rise, easing concern about the Trump administration's apparent decision not to offer price supports beyond its agreement with MP Materials.

Tomahawks Need Rare Earths

"It's notable that more than 100 Tomahawk missiles were reportedly launched on the first night alone," Gabelli Funds portfolio manager Tony Bancroft commented on Monday. "With roughly 4,000 in the U.S. arsenal, that level of usage underscores the likelihood of increased replenishment, production and defense spending going forward."

The export controls imposed by China target seven minerals that are critical for military hardware, from RTX (RTX) Tomahawks, to Lockheed Martin's (LMT) F-35 fighter jet, Predator drones and nuclear-powered submarines. In addition to yttrium and scandium, those rare earths include samarium, gadolinium, dysprosium, terbium and lutetium.

Prices On The Rise

Ucore Rare Metals (UURAF), which trades over the counter and is building a plant in Louisiana, issued a news release on Feb. 23 detailing price increases for rare earth oxides, especially the heavy rare earths whose export China has restricted based on their defense-industry importance.

Ucore said that dysprosium oxide prices recently increased to over $200 per kg in China and to $1,000/kg outside China. Terbium oxide has climbed to $900/kg in China and $4,500/kg outside of China.

As for light rare earth pricing, the price of neodymium-praseodymium (NdPr) oxide has more than doubled since July, when the Pentagon agreed to ensure a price floor of $110 per kilogram. NdPr has climbed to $120/kg in China and as high as $140/kg in North America, Ucore said.

Rare earth stocks backtracked after the Trump administration declined to provide similar price support to USA Rare Earth as part of the government's investment in the company in January.

Nova Scotia-based Ucore has received $22.4 million in U.S. Defense Department funding. The company says its RapidSX technology platform is able to process rare earths at triple the rate of conventional processing and requires a smaller footprint.

Production Ramp

James Litinksy, MP CEO, said his company is on track to produce separated dysprosium and terbium late this year. Those two rare earths improve resistance to demagnetization at high temperatures. Litinsky said. However, he added that MP expects "long-term demand, growth and pricing strength for NdPr to far outpace that of dysprosium and terbium" as physical AI and humanoid robot applications take off.

REalloys, which began trading on the Nasdaq last week after a merger with Blackboxstox, is expanding heavy rare earth processing capacity in Canada in a partnership with the Saskatchewan Research Council. The expansion, set to be operational in early 2027, targets annual production of 30 tons of dysprosium oxide, 15 tons of terbium oxide and 400 tons of neodymium-praseodymium (NdPr) oxide.

REalloys, which has a rare earth deposit in Saskatchewan, also plans to build an additional processing facility in the area as it establishes a mine-to-magnet supply chain for rare earths.

Rare Earth Stocks

MP surged 6.5% to 62.55, offering an early entry opportunity as shares broke above the trendline sloping down from the Oct. 14 peak and cleared the 50-day line near 60.

USA Rare Earth powered up almost 9% to 20.58. USAR also made a strong move off the 50-day moving average and broke above a trendline from the recent peak of 32.07 on Jan. 26.

REalloys, which surged 40.9% in its Nasdaq debut week, was an exception on Monday, pulling back 4%.

Keep in mind that many rare earth stocks are extremely volatile, which makes it easy to get shaken out with a loss. In the current environment, stocks with a 21-day average true range above 8% shouldn't make up a substantial part of your portfolio. According to MarketSurge, MP has a 21-day ATR of 6.5%, below that of USAR (10.3%) and REalloys (15.33%).

Be sure to read IBD's The Big Picture column after each trading day to get the latest on the prevailing stock market trend and what it means for your trading decisions.

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This article was originally published on Investor's Business Daily