3 Top Lithium Mining Stocks to Buy for Stellar Long-Term Gains
Lithium mining stocks have gained significant traction in the past few years. The many use cases of lithium have resulted in exponential growth estimates for the industry (19.57% per year until 2028).
Although the lithium industry has consolidated, most lithium mining stocks remain in their early stages of trading, meaning mispricing is a frequent occurrence. As such, I decided to dial in and extracted three stellar lithium mining stocks that I believe are undervalued.
Moreover, I extended my research to ensure that each stock possesses sustainable trend growth properties. In essence, I picked out GARP (growth at a reasonable price) opportunities.
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Without further delay, herewith are three stellar lithium mining stocks to buy this October.
Sociedad Quimica Y Minera (SQM)
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Sociedad Quimica Y Minera (NYSE:SQM) is a Chilean lithium producer whose stock has drawn down by nearly 30% since the turn of the year. Investors have devalued the company due to regional political turmoil.
However, Citigroup recently stated that it believes investors have overreacted to political news. In fact, the bank assigned a $85 price target to the stock, which, if realized, would provide investors with roughly 54% in capital gains. I concur with Citigroup’s outlook, as I think investors have priced in a worst-case scenario instead of considering SQM’s influencing factors holistically.
SQM’s second-quarter results showed that lithium spans 80% of its gross profits. Sociedad Quimica has a total operating capacity of 210,000 tonnes per year. However, SQM is in the process of scaling up to about 250,000 tonnes per year.
In my view, the firm has significant competitive advantages as its low-cost mines, coupled with a refinery presence in China, set it up for long-term success. Sure, Chile’s political problems load excess risk onto SQM stock. However, we tend to forget that such risks often lead to higher returns on investment.
Lastly, SQM stock showcases a 3-year average earnings yield of 10.17% and a trailing PEG ratio of 0.06x. Therefore, from a valuation standpoint, SQM stock has GARP written all over it.
Albemarle (ALB)
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Similarly to SQM stock, Albemarle (NYSE:ALB) has shed nearly 20% of its market capitalization since the turn of the year. However, ALB stock’s curtailment was induced by diminishing sales prices instead of political turmoil.
Nevertheless, I see an opportunity here as the stock’s relative strength index (or RSI) of 19.04 implies that buying the dip might be savvy.
Considered the world’s largest lithium producer, Albemarle has a production capacity of 225,000 tonnes per year. However, the company believes it can triple that number.
Furthermore, unlike SQM, Albemarle is experiencing solid systemic support. For instance, the U.S. government recently awarded the firm a $90 million grant in an attempt to accelerate lithium’s presence in the U.S. energy mix. Will such support assist Albemarle in the long term? I certainly believe so. Subsidies will likely lead to higher profitability and a stronger balance sheet.
ALB stock is trading at approximately $172 per share. In my view, the stock is undervalued as its P/E ratio of 5.11x is below its 5-year midpoint of 25.48x. Moreover, ALB stock’s earnings per share of $33.25 over the past 12 months provides assurance that ALB isn’t a value trap.
Global X Lithium & Battery Tech ETF (LIT)
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The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) isn’t a stock but instead an exchange-traded fund. I wanted to throw this asset into the mix as I realize some investors prefer systemic exposure instead of fundamentally driven returns.
The LIT ETF uses stratified sampling to mimic the performance of the Solactive Global Lithium Index, which currently hosts stocks such as Tesla (NASDAQ:TSLA), Albemarle, and Rivian (NASDAQ:RIVN). Therefore, although this asset has lithium miners as constituents, it provides investors with exposure to the entire lithium value chain.
According to Morningstar, the LIT ETF is a large-cap, growth-orientated vehicle, suggesting it suits investors seeking high-quality long-term gains. This is echoed by its weighted average return on equity of 17.30%.
Lastly, the ETF provides its investors with a solid dividend yield of 1.35%. Keep in mind that its exposure to growth stocks means its dividend basis is naturally relatively low. Nevertheless, additional income-based returns balance the asset’s investment profile rather well.
On the date of publication, Steve Booyens did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve has passed CFA Levels 1 & 2 and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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