Forget MP Materials: This Rare Earth Stock Is Up 21% in 2025 With More Upside Ahead

Since the start of the year, MP Materials (NYSE: MP) stock price has rallied by nearly 250%. This far outperformed the S&P 500 index, which is up by around 17% during the same time frame. Yet while shares in this rare earth metals company delivered such strong outperformance this year, it doesn't mean the same thing will happen in 2026.

While geopolitical factors suggest further favorable times ahead for U.S.-based rare-earth metals companies, MP Materials may no longer be the best way to capitalize on the trend.

Rather, it may be shares in one of MP Materials' smaller competitors that offer an even greater path to upside over the next 12 months.

Image source: Getty Images.

MP Materials could deliver far less stellar gains in 2026

MP Materials' stock price may be up well over threefold this year, but in recent months, the stock has experienced sideways price action. Blame this largely on the temporary easing of trade tensions between the U.S. and China. Before this, China had threatened to restrict rare-earth metal exports to the U.S., which served as yet another boon for rare-earth metal stocks.

As you may already know, the vast majority of these materials, which are essential for the manufacture of electronics, electric vehicles, and other technologically advanced items, come from China. To reduce the power of this bargaining chip, the United States is making tremendous efforts to boost the mining and refinement of such materials by companies located either stateside or in allied countries.

Yes, next November, the "temporary truce" comes to an end. This means concerns about rare-earth metal supply could resurface, potentially boosting the value of MP Materials and its competitors. However, in the meantime, shares could continue to pull back. That's mostly because it's been future potential, not current results, that have driven most of this stock's turbo-charged rally.

Moreover, as the company has already formed a public-private partnership with the U.S. Department of Defense (DoD), it's unlikely that this development could serve as a catalyst for share price growth again. For another rare earth metals company, on the other hand, the story is entirely different.

For USA Rare Earth, it may play out far differently

With the U.S. fast-tracking the development of non-Chinese rare earth metals, this company stands to make significant progress with its rare earth metal projects. Currently, MP Materials trades at a forward price-to-earnings, or forward P/E, of around 59.

As sell-side analyst estimates likely include the impact of the DoD partnership with the company, one can argue that shares fully reflect this factor at current prices. In the coming year, rather than surge, we could see MP Materials merely "grow into its valuation," producing far less stellar gains for investors.

Now, let's contrast that with USA Rare Earth (NASDAQ: USAR). Yes, USA Rare Earth currently trades at an even richer valuation than MP Materials, given its status as a pre-revenue company. Rallying by just 25% this year, while it has outperformed the S&P 500, it has underperformed considerably relative to MP Materials.

Still, USA Rare Earth's prospects could significantly improve within the next year. How? It all has to do with the potential for USA Rare Earth to enter its own public-private partnership.

The bottom line

It's not a secret that USA Rare Earth could eventually enter a partnership with the DoD, where, through equity financing and long-term purchase commitments, the DoD helps the company rapidly scale up its operations. Back in October, the stock experienced a brief rally after CEO Barbara Humpton noted that the company remains in "close communication" with the Trump administration.

This sparked speculation of an imminent deal. Although a deal has yet to emerge, it could happen sometime in 2026. With China's suspension of its rare-earth metals export ban set to end around 10 months from now, reducing U.S. dependence is going to become an even greater priority.

While not certain, obtaining DoD funding could fuel a triple-digit rally for USA Rare Earth stock, as it did for MP Materials. Hence, my view is that this smaller rare earth metals stock has greater upside potential in the coming year.

In short, it's not so much that you should avoid MP Materials and buy only USA Rare Earth. Both stocks remain very risky, with USA Rare Earth arguably riskier given its current lack of government backing. Expect both names to experience high levels of stock market volatility. However, if you're looking to get in "on the ground floor" with a rare-earth metals stock, going with the latter is your best choice.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool recommends MP Materials. The Motley Fool has a disclosure policy.