While most investors are familiar and hold positions in precious metals like gold and silver or industrial base metals through vehicles such as iPath DJ-UBS Copper ETN (NYSE:JJC), odds are they have never heard of tantalum, neodymium or samarium. Nevertheless, these elements are important components of many electronic devices such as cell phones, hybrid vehicles, electric cars and wind turbines. In fact, rare earth metals and minerals are extremely important to modern living and technology. Despite this, many go unnoticed in investors' portfolios. Given the increasing demand and dwindling supplies of such elements, investors may want to take the rare earths for a spin.

IN PICTURES: 6 Ways To Make Better Options Trades

Why Rare Earths
Increasing populations are one of the hallmarks for investing in commodities and with the rare earth minerals the thesis is the same. The adoption of technology and improvements in infrastructure will require more and more of these minerals. Rare earths can be found in lasers, flat panel televisions and new e-readers. Terbium is one of the key ingredients in low energy CFL light bulbs. Interestingly enough, the green revolution is one of the major catalysts for these metals' recent growth. As we focus on energy efficiency, there has been a big push toward hybrid and electric vehicles, and every Toyota (NYSE:TM) Prius on the road uses one kilogram of neodymium and nearly 30 pounds of lanthanum in its lithium battery. The wind energy industry also thrives on rare earths. It takes roughly one ton of neodymium for every megawatt of generating capacity a wind turbine has.

The China Factor
Just as demand for these commodities is increasing exponentially, their supplies are facing deep constraints. China controls 95% of total worldwide production and known supply of rare earth metals, and almost 100% in the case of dysprosium and terbium. Aside from this control, the Chinese government has put major export quotas on many of these metals, reducing global supply. Most recently, the Chinese government cut the export quota on tungsten, used in light bulbs, to 14,300 metric tons, down from 14,600 tons. Continued pressure from China in the form of supply quotas could have these metals facing shortage fears and higher prices.

Potential Investment
Unlike adding an investment in silver to a portfolio through a fund like the Global X Silver Miners ETF (NYSE:SIL), adding rare metals is little more difficult. Although, Van Eck has recently filed for a "minor metals" exchange traded fund, until it launches investors looking to invest in the sector may need to think outside the box.

Several broad-based mega-miners have some exposure to rare earth and minor metals. Australia's BHP Billiton (NYSE:BHP) is one of the largest producers of manganese and cobalt and Anglo American (OTC:AAUKY) operates just one of three worldwide mines devoted to niobium, which is used in high-strength steel. However, these rare earth operations only make up a small fraction of their total mining pies. Most pure players, like Lynas Corp (OTCBB:LYSDY) are exploration companies, which have yet to begin to access their reserves. Investors do have a few choices in the sector.

Analysts predict that Molybdenum prices could rise nearly 31%, up from $19 a pound, by year end as supply constrictions continue. The metal, which is used to make extremely high strength steel, is a byproduct of copper production and four companies account for nearly 50% of its total production. Freeport-McMoRan (NYSE:FCX) has its hand in molybdenum, but for a pure take on the metal, Thompson Creek Metals Company (NYSE:TC) accounts for 4% of global production.

Aside from being a fertilizer and agriculture play, Sociedad Quimica Chile (NYSE:SQM) is the world's largest miner of lithium. As continued adoption of hybrid cars and rechargeable batteries for electronic devices increases, lithium demand is expected to grow to nearly 250,000 tons a year, up from about 100,000 tons. Analysts seem very bullish on this company's prospects, with many having set price targets in the low $70 range, almost double the current share price.

The Bottom Line
Gold, silver and other base metals get all the attention, but the biggest bull market may be in the rare earth minerals. The increases in demand and supply restrictions from China could have detrimental effects on their pricing. Pure players are hard to come by, but investors may want to direct some of their long-term money to the sector. (For more stock analysis, take a look at 3 Industrials Up YTD.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Mutual Funds & ETFs

    ETF Analysis: First Trust Dorsey Wright Focus 5

    Take a closer look at the First Trust Dorsey Wright Focus 5 ETF, a unique and innovative fund of funds based on momentum and relative strength.
  2. Mutual Funds & ETFs

    ETF Analysis: iShares National AMT-Free Muni Bond

    Take an in-depth look at the iShares National AMT-Free Municipal Bond ETF, a highly diverse and very popular muni bond fund.
  3. Mutual Funds & ETFs

    Top 3 Switzerland ETFs

    Explore detailed analysis and information of the top three Swiss exchange-traded funds that offer exposure to the Swiss equities market.
  4. Mutual Funds & ETFs

    7 Best ETF Trading Strategies for Beginners

    Exchange-traded funds are ideal instruments for beginning traders and investors. Learn the seven best strategies for trading ETFs.
  5. Mutual Funds & ETFs

    ETF Analysis: SPDR Dow Jones International RelEst

    Learn how the SPDR Dow Jones International Real Estate exchange-traded fund (ETF) is managed and for whom the ETF is most appropriate.
  6. Mutual Funds & ETFs

    ETF Analysis: iShares JPMorgan USD Emerg Markets Bond

    Learn about the iShares JPMorgan USD Emerging Markets Bond fund, which invests in bonds of sovereign and quasi-sovereign entities from emerging markets.
  7. Active Trading Fundamentals

    How Hedge Funds Front-Run Index Funds to Profit

    Understand what front running is, and learn how hedge funds use this investing strategy to profit from the anticipated stock buys of index funds.
  8. Mutual Funds & ETFs

    ETN Analysis: Rogers Intl Commodity Energy Total Return

    Learn more about the Rogers International Commodity Total Return, which is an exchange-traded note that tracks a broad index of commodity futures.
  9. Mutual Funds & ETFs

    ETF Analysis: Schwab US Large-Cap

    Discover how the Schwab U.S. Large-Cap exchange-traded fund is managed, the index it tracks and the investors for which it is most appropriate.
  10. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Exchange-Traded Fund (ETF)

    A security that tracks an index, a commodity or a basket of assets ...
  3. Exchange-Traded Mutual Funds (ETMF)

    Investopedia explains the definition of exchange-traded mutual ...
  4. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  5. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  6. Lion economies

    A nickname given to Africa's growing economies.
  1. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  2. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  3. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  4. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!