Small caps last week: U.S.-Iran talks, rare earths, U.S. drug policy easing, chips

This week, shares of rare earths producer USA Rare Earth rose after the acquisition of Serra Verde mines, strengthening the company’s position in a strategic sector. Meanwhile, cannabis and psychedelics stocks advanced on regulatory easing in the U.S. Against this backdrop, analysts have highlighted small caps amid uncertainty over the future of U.S.-Iran negotiations, as well as chipmakers that could benefit from the launch of a foldable iPhone. Below is a roundup of key developments in the small-cap segment from April 20 through April 24.

The situation in the Middle East remains uncertain, and the further market direction will largely depend on the outcome of U.S.-Iran negotiations. Analyst Aldiyar Anuarbekov outlined two scenarios – a truce or escalation – and four stocks that could benefit from them.

In the event of a truce, companies sensitive to lower fuel prices could benefit, including Frontier Group Holdings, an ultra-low-cost carrier with a fleet of 176 Airbus aircraft, and freight carrier Covenant Logistics Group, which could quickly restore margins.

If the conflict drags on, defensive assets may come into focus. Aluminum is one such case, as production in the Middle East has been disrupted by attacks. Among the names to watch are Kaiser Aluminum, which could benefit from supply disruptions, and Hecla Mining, a producer of silver and critical minerals in the U.S., which is attractive to investors due to its low production costs at key assets.

With the current volatility, Georgy Timoshin of Freedom Finance Global has selected five small caps with solid upside potential over the next 12 months.

Mid-cap rare earths producer USA Rare Earth announced the acquisition of Serra Verde Group – the only large-scale producer outside of Asia of all four magnetic rare earth elements: neodymium, praseodymium, dysprosium, and terbium. The deal makes USA Rare Earth a global leader in the sector, the company’s CEO said. Shares rose more than 13% on Monday.

China currently accounts for about 90% of global processed rare earth output, Reuters noted. These materials are critical for electric motors, wind turbines, defense systems, and electronics. Against this backdrop, investment bank Wedbush issued a "buy" recommendation on USA Rare Earth shares. The deal between USA Rare Earth and Serra Verde represents a “direct challenge to that dominance,” Noble said.

Cannabis-related stocks surged on Wednesday following reports of potential regulatory easing in the U.S. Barron's reported that the Department of Justice may reclassify marijuana from Schedule I to Schedule III, which would ease access to financing and research. Against this backdrop, shares of Canopy Growth and Tilray Brands rose 21% and 15%, respectively, while the AdvisorShares Pure US Cannabis ETF gained about 22%.

Psychedelics stocks also posted strong gains following an executive order by Trump aimed at accelerating research and expanding access to psychedelics for the treatment of PTSD (post-traumatic stress disorder). The order provides for a mechanism to access experimental drugs before approval. Several Wall Street analysts described this as a key moment for the sector.

The stock of UK-based Compass Pathways saw the strongest gains, with its American depositary receipts rising 42% on Monday to $9.50 per ADR. Shares of U.S. biotech AtaiBeckley climbed 21.6% to $4.90 per share, marking their highest closing level in nearly a year.

Chipmakers Skyworks Solutions and Qorvo were upgraded to “buy” by Barclays, whose analysts said the companies could benefit from the launch of a foldable iPhone this year. Their target prices imply upside of about 13-18%, although the Wall Street consensus remains more cautious.

Goldman Sachs recommended five energy stocks amid geopolitical volatility. Among them is mid-cap Golar LNG, which develops floating LNG terminals. Goldman Sachs set a target price of $60 per share, implying upside of nearly 14.5% versus the Friday close.

In software, a Motley Fool analyst recommends GitLab. The stock has fallen more than 40% year to date, even as the company continues to grow – revenue rose 26% in the last fiscal year – which makes valuations look, in the analyst’s view, “insanely low.”

Yesway, which operates a network of 449 convenience stores in the U.S., raised $280 million in its IPO, selling 14 million shares at $20 per share – the lower end of the $20-23 indicated range. The company positions itself as one of the fastest-growing retailers and plans to open about 130 new stores over the next five years.

Elmet Group raised $120 million, placing 8.6 million shares at $14 per share – the top end of the $12-14 range. The company produces critical components for defense, aerospace, and energy industries and describes itself as the only vertically integrated U.S. producer of pure tungsten and molybdenum materials.

Finally, trading in shares of Amazon-backed small modular reactor developer X-Energy began on the Freedom client platform on Friday. The company debuted on the Nasdaq under the symbol XE on Friday. It raised $1.02 billion in its IPO, pricing above the range, with a valuation of about $9.1 billion.