The Latin American Lithium Secret (SQM, ROC, FMC) Read the Bottem line
The Present - Agriculture With over half of their current sales coming from the fertilizer segment of the business, it is not a surprise the stock has been hitting new highs on a regular basis. The demand for fertilizers and anything agriculture related has been skyrocketing due to low crop supplies, demand from emerging countries and ethanol producers. Recently the weather in the Midwest as well as other regions around the globe has hurt the crop yield and therefore the need for more and better fertilizer is increasing. SQM is not a major player in the fertilizer business, but big enough to benefit from the long-term trend that is developing in the sector. (Learn more on factors which could impact your long-term investments in Taking Global Macro Trends To The Bank.)
The Future - Lithium Even though lithium only makes up about 15% of the company's revenue, it is the world's largest supplier. With oil quickly approaching $150/barrel the pressure on auto companies to move towards a less fuel-dependent vehicle is on. The next generation hybrid vehicles will likely be powered by lithium-ion batteries, thus creating a demand for the lithium that SQM supplies. As the shift to hybrids continues it should help SQM increase the size of their lithium business and make it a more prevalent part of the earnings figure.
The Competition One of Rockwood Holdings (NYSE:ROC) subsidiaries is Chemetall Lithium, which is one of the world's leading suppliers of lithium. The only problem with using ROC as your play in the lithium sector is that the company is almost too diverse in the chemical industry and the growth of lithium may not have a large enough affect on the bottom line. In April the company reported a 14.2% increase in net sales for the first quarter compared to last year.
FMC Corp (NYSE:FMC) has exposure to lithium, but in the end the company has interest in everything from agricultural chemicals to soda ash. The chart of FMC along with its exposure to lithium and diversity make it an interesting stock. FMC is up nearly 50% since mid June.
Exide Technologies (Nasdaq:XIDE) makes batteries that are used in everything from autos to power plant systems to wheelchairs. In mid-June the company reported fiscal 2008 year-end earnings of 46 cents per share, compared to last year's loss of $2.37 per share. As more devices move towards battery-power, XIDE will be a major player.
Ener1 Inc. (AMEX:HEV) is broken into three segments: lithium batteries, fuel cells and nanotechnology. The stock, which was recently listed on the American Stock Exchange (AMEX), is a small-cap play that is more of a speculative play on a number of alternative energy sectors. The key will be one of their products moving to the forefront and at this time the best bet is the lithium battery. Ener1 has seen a major decline since Monday which might present a good entry point for speculators.
Bottom Line As stated earlier, the agriculture business has been the driver of the recent rally, but in the long-term the catalyst should be the growth of the lithium-ion battery segment. The move to electric hybrid cars is inevitable, the question is when