Buy Neo Performance Materials for EV exposure, this investor says

Canadian rare earth and rare metal materials company Neo Performance Materials (Neo Performance Materials Stock Quote, Charts, News, Analysts, Financials TSX:NEO) has fallen a long way over the past year, but with industry tailwinds aplenty and a solid shareholder track record, this is a winner of a stock, according to portfolio manager Stephen Takacsy, who recently nominated NEO as a Top Pick for the 12 months ahead.

Toronto-headquartered Neo Performance Materials is involved in the processing of rare earths and metals to make industrial materials including magnets, with its products used in industries such as automotive, electronics and chemical. The company has seen its share price cut about in half since last November, with a drop in pricing worldwide for rare earth materials playing a role.

Still, the company continues to grow, posting a 22 per cent revenue growth rate in its latest quarter to $146.6 million, while adjusted EBITDA fell by 60 per cent year-over-year to $7.0 million. (All figures in US dollars except where noted otherwise.)

For Takacsy, CEO of Lester Asset Management, Neo Performance’s positioning in the electric vehicle revolution will be key to its success going forward.

“Neo is a global leader in supplying the automotive industry, and this presents a huge opportunity for them to supply magnets for the EV market as well for traction motors and micro motors in the car,” said Takacsy, speaking on BNN Bloomberg on Monday where he named NEO as a top pick.

“They’ve just announced they’re building a new plant in Europe to supply the European EV market with new government grants and long-term contracts by some of the European car manufacturers,” he said.

Neo announced in early November it was awarded a grant for up to €18.7 million from the Estonian government under the Just Transition Fund to help with the costs of building a rare earth permanent magnet manufacturing facility in Estonia.

“Coupled with our existing rare earth separations plant in Europe, this new strategic magnet manufacturing facility will help Europe move closer to achieving its greenhouse gas reduction and climate resiliency goals,” said Neo CEO Constantine Karayannopoulos in a November 11 press release.

Takacsy also noted that Australian firm Hastings Technology recently acquired 20 per cent of Neo at C$15 a share, well above its current price around C$10, an encouraging sign for investors.

“It’s is a very profitable, cash-generating company with no debt, and we have it trading close to 4x EBITDA right now, so it’s a very safe way to gain exposure to the growing rare earth materials market and EV industries,” he said. “It’s also a potential takeover candidate.” 

“It’s a very unique company in the world, really well-positioned in their space and I think there’s tremendous upside going forward. Some very smart institutions do own this stock, as well, and insiders were buying fairly recently, so they believe in the company. They’re very well managed,” Takacsy said.