Surprise Greenland Deal Has Investors Looking in the Wrong Place
Rare-earth stocks jumped on the new pact, but the best opportunity may be elsewhere. Here’s the name we bought.
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The security agreement between the U.S., Denmark, and Greenland took investors by surprise last week.
Greenland will retain its status as a sovereign nation. Meanwhile, President Trump claims that the U.S. has obtained “permanent control over security, and all other needs.”
Greenland’s Vast Resources
One provision of the deal gives the U.S. control over who can tap Greenland’s vast resources. The country is believed to hold 36 million metric tons of rare-earth elements.
On Monday, news of the deal sent rare-earth stocks higher. Critical Metals (CRML), which owns the Tanbreez Rare Earth Project located in the southern part of the country, vaulted 35% on extremely heavy volume.
While that’s an impressive move, the stock’s 35% gain wasn’t enough to push Critical Metals above its 200-day moving average (red).
This stock has a long way to go, and a lot of overhead resistance to overcome, before it can be considered a technically attractive stock. The same can be said for many names in its sector.
Great for Hockey, Bad for Mining
The excitement over rare earth stocks like Critical Metals should fade after a few days. Greenland’s harsh climate and lack of infrastructure will erode investor enthusiasm for these names.
The Greenland Ice Sheet, with an average thickness of 5,000 feet, covers approximately 80% of the country. It’s nearly a mile thick on average, and nearly two miles thick in spots.
A Defensive Play
I expect the Greenland pact to have a muted effect on rare-earth stocks. The better play might be in defense stocks.
Lockheed Martin (LMT) could supply tactical aircraft and radar networks. Northrop Grumman (NOC) could provide surveillance drones and monitoring systems.
However, one name stands out among military defense stocks right now. That name is RTX Corp. (RTX).
Just one month ago, RTX closed at its all-time high of $225 (point A). Since then, the stock has declined by about 14%. RTX is currently finding support on its 200-day moving average (red).
Despite its recent decline, RTX has gained nearly 22% over the past 12 months. It’s one of the few names in its sector that is trading above its 200-day moving average. It has a dividend yield of 1.5%.
Regarding Greenland, RTX brings to the table missile defense systems, advanced radar, and communications.
Bottom Line
Greenland is just one piece of a large puzzle. It could prove to be an insignificant piece.
Am I buying RTX just because of the recent Greenland pact? Of course not.
Recently, we sold a good portion of our tech holdings. We’re putting that capital to work in a variety of non-tech areas. We have no current holdings in defense stocks.
Regardless of the Greenland situation, RTX is the most attractive defense stock right now. RTX is just one month removed from its all-time high, and is now available at a 14% discount from that high, so we’re taking this opportunity to open a position.
At the time of publication, Ponsi was long RTX.
