While the market for Lithium-ion (Li-ion) batteries has a ton of untapped potential, Tesla Inc.’s TSLA decision to build a $5 billion Gigafactory to meet its requirement of lithium-ion battery packs brought glaring focus on the shortage of supply of this emerging energy storage technology.
Li-ion batteries are a type of rechargeable battery in which lithium ions move from the anode to cathode during discharge, and from cathode to anode when charging. They are a popular choice by electric car manufacturers, and are used by General Motors Co. GM, Navistar International Corp. NAV, BMW AG BAMXF, Daimler AG DDAIF, and Ford Motor Co. F, among many others. Li-ion batteries are also used in cellphones, laptops, and other electronic devices as well as in the aerospace and defense sector.
Back in January, it was reported that Panasonic Corp. PCRFY agreed to invest up to $1.6 billion in Tesla’s Gigafactory. Kazuhiro Tsuga, President of Panasonic, said that "We are sort of waiting on the demand from Tesla. If Tesla succeeds and the electric vehicle becomes mainstream, the world will be changed and we will have lots of opportunity to grow.”
By 2020, Tesla expects the annual Li-ion battery production of the Gigafactory to exceed the global production in 2013. The factory will produce enough battery packs to allow Tesla to build around 500,000 electric cars annually by 2020.
Production at the Gigafactory is slated to begin by the end of this year, but until then, the focus will be on other lithium-related companies. Thus, it would be a good idea to invest in some companies that manufacture these batteries, as well as those who directly handle lithium.
Let’s take a look at two stocks that are looking good at the moment:
Arotech Corp. ARTX has two business divisions: Training and Simulation, and Battery and Power Systems. The Battery and Power Systems division manufactures and sells Lithium and Zinc-Air batteries and smart chargers for the military and to the private defense industry in the Middle East, Europe, and Asia.
ARTX stock has gained more than 17% over the past 12 months, and has an average earnings surprise of 106.25%. It’s a relatively smaller company, with a market cap of currently $84.51 million. Arotech, however, is in a fast-growing industry; Electronics-Military is in the top 2% of all industries ranked on the Zacks Industry Rank.
Arotech has a price-to-book (P/B) ratio of 1.22, lower than the industry average of 1.92. It has seen historic cash flow growth of 51.58% and historic EPS growth of 700%, both well above the industry averages of 6.32% and 14.24%, respectively. While 2017 looks to be a mixed year for Arotech, the company expects year-over-year earnings growth of 200% for its next quarter, and sales growth of just about 5% in the same period.
Albemarle Corp. ALB is a major producer of fine and performance chemicals including bromine, catalysts, and lithium, and the company became the world’s largest supplier of lithium when it acquired Rockwood Holdings back in January 2015. Bloomberg estimates Albemarle’s share of the world’s lithium to be about 35%.
ALB, a Zacks Rank #2 (Buy) stock, reported an average earnings surprise from each of the trailing 4 quarters of 14.28%. The company sits in a fairly strong industry as well; Chemical-Diversified is in the top 18% of all industries ranked on the Zacks Industry Rank. The Zacks Consensus Estimate for the company’s current year (ending December 2017) is $4.17 per share, reflecting 16.74% year-over-year growth.
Albemarle has a price-to-earnings (P/E) ratio of 25.42, above the industry average of 16.54. Its price-to-sales (P/S) ratio is 4.11, while its current PEG ratio sits at 1.84. ALB stock has seen historic EPS growth of 18.51% and historic cash flow growth of 3.41%.
As a whole, the lithium industry has blossomed over the last couple of years, and according to Frost & Sullivan, the global market for Li-ion batteries doubled to $22.5 billion in 2016 from $11.7 billion in 2012. Consumer goods and automobile sectors, in large part drove the demand.
And, the share of the automobile sector in the Li-ion battery market grew to 25% in 2016 from 14% in 2012, per the data from Frost & Sullivan. This represents a Compounded Annual Growth Rate (CAGR) of 37%.
As lithium emerges as a vital component in battery supply, in addition in the increasing use of Li-ion batteries in consumer electronic products and efforts to promote the use of electric cars by many governments to curb pollution, the demand for these batteries is expected to rise.
For an in-depth discussion on Li-ion batteries and the rise of electric vehicles, make sure to check out Zacks’ free report “Electric Cars: Which Companies Will Surge?” It profiles EV technology, EV manufacturers, and the future of the electric vehicle industry. Click here to see the free report >>
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Panasonic Corp. (PCRFY): Free Stock Analysis Report
Ford Motor Company (F): Free Stock Analysis Report
General Motors Company (GM): Free Stock Analysis Report
Tesla Inc. (TSLA): Free Stock Analysis Report
Daimler AG (DDAIF): Free Stock Analysis Report
Bayerische Motoren Werke AG (BAMXF): Free Stock Analysis Report
Navistar International Corporation (NAV): Free Stock Analysis Report
Albemarle Corporation (ALB): Free Stock Analysis Report
Arotech Corporation (ARTX): Free Stock Analysis Report
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