In this piece, we will take a look at the ten undervalued lithium stocks to buy now. For more lithium stocks, head on over to 5 Undervalued Lithium Stocks to Buy Now.
Electric vehicles are all the rage these days. The sector saw renewed enthusiasm last year when the Inflation Reduction Act (IRA) was passed by Congress and signed into law by President Biden. The Act is a sweeping set of measures, which primarily aimed to reduce inflation in America as it became the biggest problem facing the economy after the coronavirus pandemic. These included lowering the federal fiscal deficit, combating high prescription drug prices, taxing stock buybacks, and increasing corporate income tax. However, as is the case with such bills, squeezed into it was another set of reforms that target electric vehicles as part of the government's efforts to reduce emissions and combat climate change. These changes covered a massive $138 billion of investments into clean energy along with $13 billion of incentives for electric vehicles.
The electric vehicle incentives will cover new and used car purchases by providing up to $7,500 in tax credits for new electric car purchases and $4,000 in credits for used vehicle purchases. As to its impact on electric vehicles, a white paper from the International Council on Clean Transportation (ICCT) estimates that EV sales will be moved to the "fast lane" and contribute towards reducing America's greenhouse gas emissions by 23%. The incentives will also grow the share of both light and heavy electric vehicles in the mix of total new vehicle sales in America, with light vehicle sales peaking at 61% of the total new vehicle sales in 2032 in case the incentives are adopted countrywide. If the incentives had not been introduced, the ICCT believes that the market share of light electric vehicles in the total new vehicle sales would have sat at a little above 40%. The caveat with the tax credit is of course that the cars have to be assembled in North America.
These details make it clear that the electric vehicle industry will definitely see stimulated demand even if it is for a decade. Delving a bit deeper, research from the investment bank Goldman Sachs makes a wager on what to expect from the market in the future. Its report, published in February 2023, outlines that half of all global car sales will be electric vehicle sales by 2035. Segmenting the projections geographically, Goldman believes that Europe will lead the world in electrification, as all new cars sold in the region will be electric by 2040 and the U.S. will be in second place with an 85% market share. However, the sharpest uptick is expected to take place in Japan, as the percentage of sales in the country will jump from a mere 20% in 2030 to 80% in 2040 - for the third highest percentage. No wonder then that Tesla, Inc. (NASDAQ:TSLA) has a stunning $576 billion market capitalization, more than both Ford and General Motors combined.
At this point, you might be wondering why is the electric vehicle market being analyzed in a piece about undervalued lithium stocks. Well, like internal combustion cars cannot survive without gas, electric cars are worthless without lithium. An average electric car battery contains around 10 kilograms of lithium, and this is where the IRA's biggest unintended consequence might come into play as President Biden aims to shift half of all new cars sold in America to EVs by the end of this decade. This is further complicated by the fact that for vehicles to be eligible for the tax credits, most of their components must be sourced from within America. The booming expected demand for electric vehicles is also expected to have an explosive impact on the global demand for lithium, which is expected to grow from 465 metric kilo tons in 2019 to a whopping 2,114 metric kilo tons in 2030 for a flat out 3,546% growth! Keep in mind that this can also negatively affect the consumer electronics market since they also require batteries for gadgets such as smartphones and laptops.
This sharp growth in lithium is also complicated by the fact that not only does it take an average of 16.5 years for an average lithium company to develop its operations, but according to estimates from the International Energy Agency (IEA), there is also a significant demand-supply mismatch in the lithium industry exacerbated by the world's sudden shift to electric vehicles motivated in no short part by Tesla's stunning success in mass producing the cars.
Lithium price increases also hampered carmakers' production last year, with Tesla, Inc. (NASDAQ:TSLA)'s chief financial officer Mr. Zachary Kirkhorn commenting on this during the firm's earnings call for the fourth quarter of 2022:
The Austin and Berlin ramp in efficiencies and 4680 will make a substantial amount of progress on that over the course of the year, and that’s within Tesla’s control. We’re doing a lot of work on cost reduction outside of that. And we talked about supply chain costs, expedite logistics, attacking everything. On the raw materials and inflation side, where lithium is the large driver there and this was a meaningful source of cost increase for us, we’ll have to see where lithium prices go. And we’re not fully exposed to lithium prices, but I think in general, is what we’ve seen from our forecast here, cost per car of lithium in 2023 will be higher than 2022. So that’s a headwind that would have to be overcome to return back to those levels. So I don’t think we’ll get there this year but I think we’ll make progress. And we’ll continue to find ways to offset these raw material costs that we don’t have control over. Andrew, is there anything on that?
With these details in mind, let's take a look at some great undervalued lithium company stocks, out of which the top picks are Sociedad Química y Minera de Chile S.A. (NYSE:SQM), Ganfeng Lithium Group Co., Ltd. (OTCMKTS:GNENF), and Yongxing Special Materials Technology Co.,Ltd (SHE:002756.SZ).
To compile our list of the most undervalued lithium stocks, we cast the widest possible net for all firms that either exclusively produce the mineral or as part of a wider mining portfolio, use it in their products, or provide periphery support to the industry. This is due to the fact that the nascent nature of the lithium industry leads to most of the firms being unprofitable - meaning that our primary selection criteria, the price to earnings (P/E) ratio, becomes inapplicable. We used both trailing and forward P/E ratios for our list, and the top ten most undervalued lithium companies with the lowest P/E ratio are listed below. For more lithium stocks, you can check out 12 Best Lithium And Battery Stocks To Buy Now.
Undervalued Lithium Stocks to Buy Now
10. Allkem Limited (TSX:AKE.TO)
Latest P/E Ratio: 9.54
Allkem Limited (TSX:AKE.TO) is an Australian company. The firm is headquartered in Brisbane, Australia. It primarily produces and sells lithium and boron out of its facility in Argentina.
Allkem Limited (TSX:AKE.TO) joins Ganfeng Lithium Group Co., Ltd. (OTCMKTS:GNENF), Sociedad Química y Minera de Chile S.A. (NYSE:SQM), and Yongxing Special Materials Technology Co.,Ltd (SHE:002756.SZ) in our list of undervalued lithium stocks.
9. Rio Tinto Group (NYSE:RIO)
Latest P/E Ratio: 9.1
Rio Tinto Group (NYSE:RIO) is one of the largest mining companies in the world. It has a lithium mine in Argentina, another site in Canada, and the firm also recovers lithium from waste materials.
As of last year's fourth quarter, 29 of the 943 hedge funds part of Insider Monkey's survey had held a stake in Rio Tinto Group (NYSE:RIO). Out of these, Ken Fisher's Fisher Asset Management is the firm's largest shareholder since it owns 14 million shares that are worth $1 billion.
8. Sigma Lithium Corporation (NASDAQ:SGML)
Latest P/E Ratio: 9.09
Sigma Lithium Corporation (NASDAQ:SGML) is a Brazilian company that is headquartered in Sao Paulo. It searches for and develops properties with lithium deposits in its home country.
Insider Monkey took a look at 943 hedge funds for their Q4 2022 investments and found out that 11 had bought the company's shares. Sigma Lithium Corporation (NASDAQ:SGML)'s largest investor in our database is Jack Ripsteen's Potrero Capital Research which owns 498,878 shares that are worth $14 million.
7. Albemarle Corporation (NYSE:ALB)
Latest P/E Ratio: 8.83
Albemarle Corporation (NYSE:ALB) is a major player in the chemicals industry. The firm rakes in billions of dollars in revenue, and it is based in Charlotte, North Carolina, the United States. It has lithium production sites all over the world, including Europe, North and South America, Australia, and Asia. Albemarle Corporation (NYSE:ALB)'s lithium products include lithium carbonate, lithium chloride, and lithium hydroxide.
By the end of last year's fourth quarter, 46 of the 943 hedge funds part of Insider Monkey's database had held a stake in Albemarle Corporation (NYSE:ALB). The firm's largest hedge fund shareholder is Israel Englander's Millennium Management since it owns a $140 million stake that comes courtesy of 646,719 shares.
6. Pilbara Minerals Limited (ASX:PLS.AX)
Latest P/E Ratio: 6.35
Pilbara Minerals Limited (ASX:PLS.AX) is an Australian company that is headquartered in West Perth, Australia. As the name suggests, the company has a lithium mining project in Pilbara, Australia. Pilbara Minerals Limited (ASX:PLS.AX) also has gold and minerals resources in Papa New Guinea.
Sociedad Química y Minera de Chile S.A. (NYSE:SQM), Pilbara Minerals Limited (ASX:PLS.AX), Ganfeng Lithium Group Co., Ltd. (OTCMKTS:GNENF), and Yongxing Special Materials Technology Co.,Ltd (SHE:002756.SZ) are some undervalued lithium stocks.
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Disclosure: None. 10 Undervalued Lithium Stocks to Buy Now is originally published on Insider Monkey.