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35.80
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8.91%
35.80
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8.91%
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52 weeks
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What Stock Could Benefit Most From the Inflation Reduction Act?

On August 7, the U.S. Senate passed the Inflation Reduction Act, authorizing $740 billion in spending. Days later, the legislation passed the House of Representatives as well -- and it is now on its way to President Joe Biden to sign. That's a lot of federal money flooding into the economy. Of that total, $369 billion was earmarked for U.S. energy security and fighting climate change. So which stocks will benefit the most? Clearly, green stocks will emerge as big winners from this legislation. What's more, the U.S. is worried about China and access to rare earth metals. Ultimately, I think this law is going to be very bullish for MP Materials (NYSE: MP). Let's see why. The future is obvious In the future, we're all going to have electric vehicles (EV). We're going to charge them at home, overnight, like we do with our mobile phones. Tesla (NASDAQ: TSLA) is the company leading this change; it's the Apple of the EV industry. Right now, however, less than 1% of Americans have an electric car. The rest of us are still guzzling gas. One of the goals of this legislation is to move the electric car out of the early adopter phase and into widespread adoption. Under current law, new electric vehicles qualify for a rebate of up to $7,500. But there's a catch -- manufacturers qualifying for this rebate are capped at 200,000 cars. Tesla and General Motors (NYSE: GM) passed this mark years ago, and Toyota Motors (NYSE: TM) just passed it as well. Ford (NYSE: F) and Nissan Motor (OTC: NSANY) are about to hit the cap, too. This new law removes the caps for all these EV carmakers. So that's big news. But there's also a huge wrinkle. Starting in 2024, none of the EVs that use rare earth metals sourced from a "foreign entity of concern" (i.e. China) would qualify for the rebate. That's a massive shift in American policy. Right now, for instance, it would be almost impossible to find a single EV on the road that doesn't include rare earth metals from China. It was Senator Joe Manchin -- the key vote in getting the bill passed -- who insisted on that stipulation. "I don't believe that we should be building a transportation mode on the backs of foreign supply chains," Manchin said. "I'm not going to do it." This is a big deal. China is a major force in rare earth metals around the world. In 2018, the U.S. imported 95% of its rare earth metals and alloys from China. This future law is a carrot/stick approach to EV automakers that is designed to break the Chinese dominance in rare earth metals. What this means, obviously, is that there's going to be a big demand for rare earth metals that are sourced and refined in the U.S., or from our allies. Rare earth metals like neodymium and praseodymium (NdPr) are incredibly important in high technology. It's not just electric vehicles that need them, but also smart phones, wind turbines, medical devices, robots, lasers, and drones. MP Materials should be a big winner MP Materials is a major miner of rare earth metals, and the largest provider in the Western Hemisphere. MP delivers about 15% of the world's supply of these metals. And demand is sky-high. As management likes to say, "We are not demand constrained. We are very supply constrained in this space. There is no shortage of (demand)." MP stock has been wildly successful since the company went public in 2020. MP already enjoys high profit margins (49%) and revenue growth (96% in Q2). Right now MP has to send its metals to refineries in China. But that's going to change as the company's Stage 2 and Stage 3 facilities come online. The company hopes to start ramping up production in 2023. MP has already signed a long-term supply contract to start providing EV magnets for GM engines. Earlier this year the Department of Defense gave MP a $35 million contract to refine heavy rare earth elements (HREE) at the company's site in Mountain Pass, California. In the DoD's view, rare earth metals are a strategic asset. MP has been focused on "light" rare earths like NdPr, which are highly valuable and extremely profitable. China dominates in "heavy" rare earths. The DoD contract is an attempt to rectify this situation. MP is a powerful choice for a green economy MP does have some friendly competition. While it's the largest source of rare earth metals in the Western Hemisphere, there's a miner in Australia called Lynas Rare Earths (NASDAQOTH:LYSDY) that is also highly profitable (45% profit margins) and has higher revenue ($600 million over the last 12 months, compared to $500 million for MP). Lynas not only has a rare earths mine, it also has a refining facility in Malaysia that's been up and running for years. Unfortunately, this refinery might be similar to the mining operations in China that are bad for the environment. In fact, Lynas got in trouble based on suspicions that it is contaminating the drinking water of the nearby city of Kuantan (population 600,000). After complaints and investigations, Lynas has agreed to remove its refinery out of Malaysia entirely in 2023, and will relocate it to the outback of Australia. That's one of the dirty secrets about rare earth metals -- digging them out of the ground is not very clean at all. MP Materials is a big improvement on this score. The company is spending a lot of money to make sure that its mining operations will not ruin the water supply. MP operates a "zero-discharge" facility with no processed water disposed offsite or to the ground. Dry tailings are instead retired in lined impoundments. I think both of these companies will profit from the new law, and the federal desire to break the monopoly in China. But I think with its environmental record, MP Materials is the stronger pick for a green future. 10 stocks we like better than MP Materials Corp. When our award-winning analyst team has a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.* They just revealed what they believe are the ten best stocks for investors to buy right now... and MP Materials Corp. wasn't one of them! That's right -- they think these 10 stocks are even better buys. *Stock Advisor returns as of July 27, 2022 Taylor Carmichael has positions in Apple. The Motley Fool has positions in and recommends Apple and Tesla. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc. Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off. Today’s Big Picture Asia-Pacific equity indexes ended today’s session down across the board. India’s Sensex ended the day essentially flat, down 0.06%, China’s Shanghai Composite and Australia’s ASX All Ordinaries declined 0.54% and 0.55%, respectively while Japan’s Nikkei fell 0.65%, Taiwan’s TAIEX dropped 0.74% and South Korea’s KOSPI declined 0.90%. Hong Kong’s Hang Seng led the way, down 1.96% on a broad selloff led by Health Technology and Health Services names while Transportation and Communications sectors provided the only relief. By mid-day trading, major European equity indices are down across the board and U.S. futures point to a positive open later this morning. At 8:30 AM ET, the much anticipated July Consumer Price Index (CPI) report was released: The headline figure for the month was expected to fall to 8.7% from June’s blistering 9.1% reading with core CPI that excludes food and energy ticking higher to 6.1% in July vs. 6.0% the prior month. The actual numbers show that inflation hit 8.5%, and core inflation was 5.9%. With the national average retail price for a gallon of gas falling through late June and July from its June 14 high of $5.016 per gallon per data from AAA, forecasters had expected the month over month decline in the headline CPI for July. The July Employment Report also showed wage inflation ran hotter than expected during the month. Let’s also keep in mind that we will be facing a “wash, rinse, repeat” cycle when it comes to inflation data and expectations for the Fed given tomorrow’s July Producer Price Index report. Data Download International Economy Producer prices in Japan rose by 8.6% YoY in July, compared with market forecasts of 8.4% and following an upwardly revised 9.4% the prior month. While marking the 17th straight month of producer inflation, the latest reading was the softest since last December. China's annual inflation rate rose to 2.7% in July from 2.5% in June and compared with market forecasts of 2.9% but even so the July figure marked the highest reading in the last year. The country’s Producer Price Inflation figure for July eased to a 17-month low of 4.2% YoY from 6.1% the prior month and less than the market consensus of 4.8%. Annual inflation rate in Germany was confirmed at 7.5% YoY for the month of July, down slightly from June’s 7.6% reading but still above the March and April figures of 7.3%-7.4%. The annual inflation rate in Italy slowed to 7.9% YoY in July from June’s 8% reading matching expectations for the month. While energy prices declined, prices for food and transportation rose at a faster pace. Domestic Economy This morning we have the usual Wednesday weekly reports for MBA Mortgage Applications and Crude Oil Inventories from the U.S. Energy Information Administration. At 10 AM ET, Wholesale Inventories for June will be published, and the figure is expected to rise 1.9%. While investors and economists will keep more than a passing interest in those reports and data, as we discussed above, it will be the July Consumer Price Index report at 8:30 AM ET that will shape not only how the US stock market opens today, but also expectations for the Fed’s next course of monetary policy action. The U.S. Energy Information Administration (EIA) expects domestic production of crude oil, natural gas and coal will all increase next year compared with this year. It forecast US crude production rising 6.7% to an all-time annual high 12.7M bbl/day in 2023 from 11.9M bbl/day in 2022, US natural gas output climbing to 100B cubic feet (cf)/day from 97B cf/day, and US coal production inching up to 601M short tons in 2023 from an expected 599M this year. The EIA also modestly increased its 2022 average nationwide gasoline price forecast to $4.07/GALLON vs. $4.05 if called for last month. It now also sees 2023 prices at $3.59/GAL vs. its previous forecast of $3.57. Markets Stocks continued in their holding pattern waiting for the latest CPI print save for some fundamental stories pushing Technology names and small caps around. The Dow and the S&P 500 were down slightly at 0.18% and 0.42%, respectively while the Nasdaq Composite dropped 1.19% and the Russell 2000 closed down 1.46% on the day. Energy names led the way yesterday but were overpowered by Technology and Consumer Discretionary sectors. Here’s how the major market indicators stack up year-to-date: Dow Jones Industrial Average: -9.81% S&P 500: -13.51% Nasdaq Composite: -20.14% Russell 2000: -15.83% Bitcoin (BTC-USD): -52.08% Ether (ETH-USD): -55.38% Stocks to Watch Before trading kicks off, CyberArk (CYBR), Fox Corp. (FOXA), Jack in the Box (JACK), Nomad Foods (NOMD), Vita Coco (COCO), Tufin Software (TUFN), and Wendy’s (WEN) will be among the companies issuing their latest quarterly results and guidance. At 9 AM ET, Samsung (SSNLF) will hold its Galaxy Unpacked 2022 at which it is expected to introduce new Galaxy foldable smartphone models, a new Galaxy Watch, and Galaxy Buds. Shares of advertising technology platform company The Trade Desk (TTD) jumped after the company reported quarterly results that topped expectations and guided current quarter revenue above the consensus forecast. The RealReal (REAL) reported a smaller than expected bottom line loss for its June quarter as revenue for the period rose 47.2% YoY to %154.44 million, topping the $153.99 million consensus. However, the company issued downside guidance for both the current quarter and 2022. Revenue for the September quarter is now expected to be $145-$155 million vs. the $164.3 million consensus; for the full year of 2022, revenue is forecasted to be $615-$635 million vs. the $653.7 million consensus. Shares of Coinbase Global (COIN) moved lower after it reported June quarter results that missed top and bottom line expectations. Revenue for the quarter fell 63.7% YoY as Total trading volume fell 53.0% YoY and 29.8% sequentially to $217 billion. Monthly Transacting Users (MTUs) grew 2.3% YoY but fell 2.2% sequentially to 9.0 million. For the current quarter, Coinbase sees the number of MTUs trending lower sequentially and total trading volume to be lower compared to the June quarter. Shares of Sweetgreen (SG) tumbled in aftermarket trading last night after the company missed quarterly revenue expectations, lowered its 2022 forecast, announced it will lay off 5% of its workforce, and downsize to smaller offices. ChipMOS TECHNOLOGIES (IMOS) reported its July revenue was $65.1 million, a decrease of 19.4% YoY and down 7.7% MoM. Taiwan Semiconductor (TSM) reported its July revenue increased 49.9% YoY to NT$186.76 billion, which equates to a 6.2% MoM improvement. Electric vehicle subscription startup Autonomy placed a $1.2 billion order for 23K electric vehicles with 17 global automakers, including BMW (BMWYY), Canoo (GOEV), Fisker (FSR), Ford (F), General Motors (GM), Hyundai (HYMTF), Lucid Group (LCID), Mercedes-Benz (DDAIF), Polestar (PSNY), Rivian (RIVN), Stellantis (STLA), Subaru (FUJHY), Tesla (TSLA), Toyota Motor (TM), VinFast, Volvo Car (VLVOF) and Volkswagen (VLKAF). IPOs As of now, no IPOs are slated to be priced this week. Readers looking to dig more into the upcoming IPO calendar should visit Nasdaq’s Latest & Upcoming IPOs page. After Today’s Market Close Bumble (BMBL), CACI International (CACI), Coherent (COHR), Dutch Bros. (BROS), Red Robin Gourmet (RRGB), and Walt Disney (DIS) are expected to report their quarterly results after equities stop trading today. Those looking for more on which companies are reporting when, head on over to Nasdaq’s Earnings Calendar. On the Horizon Thursday, August 11 Germany: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August US: Weekly Initial & Continuing Jobless Claims US: Producer Price Index – July US: Weekly EIA Natural Gas Inventories Friday, August 12 Japan: Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August China: China Thomson Reuters Ipsos Monthly Global Primary Consumer Sentiment Index - August Eurozone: Industrial Production - June US: Import/Export Prices – July US: University of Michigan Consumer Sentiment Index (Preliminary) – August Thought for the Day “The release date is just one day, but the record is forever.” ~ Bruce Springsteen Disclosures Tufin Software (TUFN), CyberArk (CYBR) are constituents of the Foxberry Tematica Research Cybersecurity & Data Privacy Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Index Canoo (GOEV), Fisker (FSR), Lucid Group (LCID), Rivian (RIVN), Tesla (TSLA), Vita Coco (COCO) are constituents of the Tematica BITA Cleaner Living Sustainability Screened Index The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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