3 lithium stocks preparing to charge
Lithium stocks have been among the most volatile in 2021. One reason is their use in the production of lithium-ion batteries, which remain the dominant style of battery for electric vehicles (EVs). However, for a number of reasons, including the global shortage of chips, the electric vehicle revolution has stalled.
But in addition to semiconductor chips, it is an industry that will need lithium. And as lithium is used for a variety of electronic devices, including our smartphone batteries, demand is expected to remain strong. According to Statista, the demand for lithium will reach 820,000 tonnes in the next few years; this is about double its current level.
But getting there will not be easy. Lithium is 33rd most abundant element in the world. However, exploiting it profitably is a challenge. In this article, we’ll take a look at three companies that are at the forefront of this industry and have proven their ability to bring lithium to market.
One of the characteristics all of these stocks share is that they are currently trading at or above the analyst community’s 12-month consensus price target. This likely reflects the supply chain difficulties that will continue to plague the industry in the near term. However, buying lithium stocks is a long-term game and these stocks are likely to be present for the long term.
A company with a strategic partnership
The first company we recommend is Livent (NYSE: LTHM). Timing is important for investing and Livent went public in October 2018. But it took about a year for investors to start realizing the potential of lithium. From May 24, 2019 to February 2020, LTHM’s stock almost doubled. Then the Covid-19 pandemic took many mining operations offline and with it the price of many lithium stocks.
But since the 2020 elections, LTHM action has been on the rise. And it shows investor optimism for the company, which derives 61% of its revenue from lithium carbonate, lithium hydroxide and lithium chloride. These are all essential parts of the electric vehicle market.
The company has a supply contract with Tesla (NASDAQ: TSLA) which expires in late 2021. The company says it “continues to discuss framework for a long-term supply partnership” with Tesla. If this happens, investors might start to feel more comfortable buying shares of a company that has shown to be difficult to make a profit.
A company that can be an acquisition target
Speaking of Tesla, our next business is Lithium Americas (NYSE: LAKE) which could be an acquisition target for Tesla. For starters, Lithium Americas is a small-cap Canadian mining company with a market capitalization of approximately $ 2.6 billion. One of the company’s projects is located in Nevada where Tesla already has its Gigafactory. And the company also has a project in the “lithium triangle” in Argentina.
These two elements support the idea that Tesla could decide to make a strategic acquisition that would supercharge its battery production plant. But even if Tesla does not become a partner, there should be enough room in the electric vehicle market to accommodate many lithium producers. And that makes Lithium Americas a lithium stockpile to consider.
An established business
The last stock on our list is Albermarle (NYSE: ALB). Albermarle is not a mining company, which means it is not pure play in the industry. The company is a specialty chemicals manufacturer that uses lithium salts to produce compounds such as lithium carbonate and lithium hydroxide that are essential in lithium-ion batteries.
But there is another reason to consider Albermarle. Of the three companies on this list, this is the least speculative. It currently has a market capitalization of 29.48 billion. And the company is a dividend aristocrat having increased its dividend in each of the past 27 years.