Energy & Critical Metals
Why These 3 Stocks Are the Best Ways to Play Lithium Right Now
As much as some institutions, like Goldman Sachs and Bank of America, like to argue that lithium supply will outweigh demand, it won’t happen. That is,…
As much as some institutions, like Goldman Sachs and Bank of America, like to argue that lithium supply will outweigh demand, it won’t happen. That is, it won’t happen anytime soon. In fact, lithium producers just warned global supplies may not meet electric vehicle demand at all. That’s creating a big opportunity for lithium stocks.
It’s why major automakers, like General Motors (NYSE:GM) and Ford (NYSE:F) recently secured lithium supply deals with Albemarle (NYSE:ALB) and Lithium Americas (NYSE:LAC). To keep up with demand, every existing producer supplying the market today must double output every two to three years for the next decade, Albemarle once said.
Also, According to Fastmarkets, there were 45 operating lithium mines last year with 11 expected to open this year and seven next year. This pace is, however, far from adequate when compared to the outsized global demand.
So, which lithium stocks should we buy and hold for the long term?
Albemarle (ALB)
Source: IgorGolovniov/Shutterstock.com
Every time Albemarle pulls back, buy it. In fact, when it has dipped, I typically highlight it on these pages. For example, on May 5, it dipped to about $180 before testing $220. Then, it dropped to $195.54, which we highlighted again on June 6. From there, it almost hit our target price of $250. Having said that, it is pulling back again.
Helping, UBS analysts just upgraded the stock to a buy rating, with a price target of $225. Even Benchmark just said ALB is the best “growth opportunity.” All with ALB sales expected to grow about 12% a year between now and 2025, with EV growth and all things green. Plus, with all things green likely to push lithium consumption even higher, it should strongly support ALB earnings growth, and send its stock to higher highs.
Livent Corp. (LTHM)
Source: Ralf Liebhold / Shutterstock
Livent Corp. (NYSE:LTHM) has been incredibly explosive for us. The last time we featured the LTHM stock, it traded at $22.75 on May 5. Today, it’s up to $28.32 and could push even higher.
For one, it just posted an EPS of 60 cents on $235.5 million in sales. Even better, LTHM raised its full-year guidance. It now expects its earnings before interest, taxes, depreciation and amortization (EBITDA) to fall between $530 million and $600 million. That’s well above prior EBITDA guidance for $510 million to $530 million.
Secondly, Livent and Allkem Ltd. will combine in an all-stock $10.6 billion deal by year-end. Under the deal, Livent shareholders will receive 2.406 shares in the combined firm for each share. Even better, the tie-up between these two will create the third-largest lithium producer in the world, and should benefit from tight supply and strong demand. There’s plenty of long-term growth ahead for these merging companies.
Amplify Lithium & Battery Technology ETF (BATT)
Source: GrAl / Shutterstock.com
You could also look to diversify, at a relatively low cost, with an exchange-traded fund such as the Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT). With an expense ratio of 0.59%, the BATT ETF provides exposure to global companies deriving material revenue from developing, producing, and using lithium battery technology.
Some of its top holdings include Tesla (NASDAQ:TSLA), Albemarle (NYSE:ALB), Sociedad Quimica (NYSE:SQM), and Panasonic (OTCMKTS:PCRFY). Even better, over the last few months, the BATT ETF exploded from a low of about $11.80 in March to a recent high of $13.99. Moving forward, given the lithium supply-demand situation, I’d like to see the BATT ETF closer to $17.50 again. It last hit that price in early 2022.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
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