Neo Performance Materials Inc. (NEO.CA) has many growth drivers at its back, which makes it an ideal pick for the 2025 Top Picks report. The company processes and sells rare earth metals, magnets, and magnetic powders, highlights Philip MacKeller, editor of Contra the Heard.
These products are used throughout the economy in everything from medical imaging devices and wireless technologies to lighting and petroleum refining. Additionally, its products are important for electric vehicles and energy storage. This makes NEO a play on economic growth and the energy transition.
The organization is making the most of the energy transition by rationalizing its operations in China and by expanding in Europe. The company is building a sintered magnet facility in Narva, Estonia. So far, the construction is on time and on budget, with commissioning expected in 2025.
Once the plant is up and running, it should produce enough material for 1.5 million electric cars annually before phase two of construction begins. That should eventually result in the manufacturing of enough material for 4.5 million electric cars a year. This facility should drive significant sales and earnings appreciation in the years ahead, and the market should start to better value this asset now that phase one is near completion.
Neo Performance could benefit from East/West tensions, too. It is one of the few, downstream rare earth manufacturers with operations outside of China. This could be important if the rivalry between China and Western democracies heats up or if President Trump follows through on his current threats and ignites a trade war.
The market saw a glimpse of what this could look like in early December when China announced an export ban on gallium, germanium, and antimony to the US. The stock rallied in response and its business should be a benefactor of this decision.
The enterprise has a clean balance sheet, low valuations, and is engaged in a strategic review. This may not yield any results. But it could unlock value via asset sales, divestments, or even the sale of the company. Any of these outcomes could boost the share price.
All investments carry risk, and Neo Performance is no different. Though it has a huge footprint outside of China, it operates within the country as well. These sites could be impacted if a trade war goes into overdrive or if there is ever an armed conflict over Taiwan.
The sintered magnet project in Estonia is in a town called Narva, which borders Russia and is 87% ethnic Russian. If Putin is successful in Ukraine and NATO fractures, Narva could top Putin’s invasion list. Even if this does not happen, Neo sources certain materials from Russia, which could be caught up in sanctions.
Risks and all, the stock has great growth drivers and is a way to own a bit of the future at a reasonable price.
