Lithium Likely to Become a De-Facto Precious Metal: 5 Picks
Will lithium join the league of precious metals such as gold, silver, diamond or platinum? Likely so, owing to a global move toward clean energy and carbon emission reduction, a massive shift in the auto sector across the world toward electric vehicles and the proposed Inflation Reduction Act of the Biden administration.
At this stage, it will be prudent to invest in lithium-producing companies with a favorable Zacks Rank. Here we offer five such companies, namely - Albemarle Corp. ALB, Livent Corp. LTHM, Piedmont Lithium Inc. PLL, Sociedad Química y Minera de Chile S.A. SQM and Lithium Americas Corp. LAC.
Global Move Toward Clean Energy
The global economy is crawling back to normalcy after two COVID-19-led pandemic-ridden years. As the global economy is bottoming out, albeit, at a slow pace, the demand for energy products has surged. This demand is primarily met by fossil fuels, prompting a spike in the prices of crude oil and natural gas.
However, as the planet is heating up, most of the political and economic super-powers are shifting toward clean energy to reduce massive carbon emissions. This has led to a move toward solar and wind power, ethanol blending on crude oil and a remarkable shift toward electric vehicles. The lithium story starts from here.
Massive Drive for Electric Vehicles
The latest thrust in the auto sector is electric vehicles (EV), which are rapidly changing the dynamics of this space. As the government of several developed and emerging markets are encouraging EVs for a clean climate, this industry set to flourish in the near future.
The Boston Consulting Group projects EV sales to rise from 12% of the global market in 2020 to 47% in 2025. Fortune Business Insights estimated that the global EV market size is expected to grow from $287.4 billion in 2021 to $1.32 trillion in 2028.
EVs run on batteries and lithium is the most vital component. Consequently, the demand for lithium is bound to skyrocket.
Lithium: The Next-Generation Precious Metal
Per Fortune Business Insights, the global lithium market size is projected to reach $8.24 billion by 2027-end, representing a CAGR of 9.2% over the 2020-2027 time frame. Credit Suisse expects lithium demand in 2025 to triple from the 2020 levels.
The rising EV penetration will have a trickle-down effect on the supply chain, making lithium more attractive than ever. Per Reuters, lithium demand is set to hit 1 million tons by 2025 and 3 million tons by 2030 from the 320,000 tons registered in 2020.
In the United States, Tesla Inc. (TSLA) is the undisputed leader in the EV space with General Motors Co. (GM), Ford Motor Co. (F) and Toyota Motor Corp. (TM) having joined the race already.
The size of the EV market in China is projected to cross $800 billion by 2027. At present, EV penetration in emerging markets like India, Brazil and Indonesia is less than 1%. Major auto makers of these countries are gradually shifting toward EV, therefore opening an astonishing growth opportunity for lithium-based batteries.
Inflation Reduction Act: A Major Catalyst
On Aug 6, Senate has approved a $430 billion Inflation Reduction Act, which is headed for a vote in the House of Representatives this week. The bill has provisions of $390 billion to combat climate change.
Per the Biden administration, the most important way to restore a clean climate is to encourage Americans to shift toward electric vehicles. Democrats are of the opinion that the bill if converted into an act, will reduce carbon emissions by 40% by 2030. Undoubtedly, lithium will be a major beneficiary of this legislation.
Our Top Picks
We have narrowed our search to five lithium producers that are expected to gain from this massive opportunity. Each of our picks carries either a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
The chart below shows the price performance of our five picks in the past three months.
Image Source: Zacks Investment Research
Albemarle should gain from long-term growth in the battery-grade lithium market. It is expected to benefit from its actions to boost its global lithium derivative capacity. ALB will also benefit from the synergies of the Rockwood acquisition. The buyout has enhanced diversity across end markets.
Albemarle also remains focused on executing its cost-reduction program. Its cost saving actions are expected to support margins in 2022. ALB also remains committed to boosting shareholder returns leveraging strong cash flows. It remains focused on maintaining its dividend payout. Albemarle has ample liquidity to meet its short-term debt obligations.
The Zacks Rank #1 Albemarle has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 41.4% over the last 7 days. ALB has a current dividend yield of 0.65%.
Livent is the largest vertically integrated pure-play producer of low-cost lithium. This leading lithium producer is a seller to EV original equipment manufacturers and battery makers worldwide. LTHM is one of the lowest-cost resources for lithium carbonate, providing the company with a competitive edge. Livent has a current production capacity of around 20,000 metric tons of lithium carbonate, which is expected to double by fourth-quarter 2023.
LTHM is currently producing qualified battery-grade lithium hydroxide in the United States and China. Livent remains on track with near-term capacity expansions and a 5,000 metric ton hydroxide addition in Bessemer City. The acquisition of 25% indirect equity ownership in the Québec-based Nemaska Lithium project is also set to aid top-line growth.
The Zacks Rank #1 Livent has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 9.5% over the last 7 days.
Sociedad Química produces and distributes lithium and its derivatives. SQM offers lithium carbonates for various applications that include electrochemical materials for batteries, frits for the ceramic and enamel industries, heat-resistant glass, air conditioning chemicals, continuous casting powder for steel extrusion, primary aluminum smelting process, pharmaceuticals.
Sociedad Química sells lithium derivatives and is an ingredient in the manufacturing of gunpowder. Further, SQM supplies lithium hydroxide for the lubricating greases industry, as well as cathodes for batteries.
The Zacks Rank #1 Sociedad Química has an expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 17.5% over the last 30 days. SQM has a current dividend yield of 9.62%.
Piedmont Lithium has not generated revenues yet, but is gaining massive investors’ attention of late due to its prospects. PLL is set to benefit from hard rock lithium assets in three strategic locations including North Carolina, Quebec and Ghana.
Piedmont Lithium is focused on the development of the Carolina Lithium Project, located in North Carolina — one of the top-notch regions in the world for lithium exploration. The project targets the production of 30,000 tons/year of battery-grade lithium hydroxide. PLL also holds a 25% stake in the Abitibi lithium hub and a 16.52% interest in Sayona Mining.
The Zacks Rank #2 Piedmont Lithium has an expected earnings growth rate of more than 100% for next year. The Zacks Consensus Estimate for next-year earnings has improved 45.2% over the last 30 days.
Lithium Americas operates as a lithium resource firm. This emerging entrant in the lithium space is not producing any lithium right now. Nonetheless, construction activities at LAC’s Caucharí-Olaroz lithium brine project in Argentina continue to advance with production in mid-2022 expected to eventually produce 40,000 tons per annum of lithium carbonate equivalent.
Moreover, as far as Lithium Americas’ Thacker Pass project in Nevada is concerned, an integrated pilot plant to support enhanced scale and ongoing optimization work will make Lithium Americas’ long-term prospects promising. The Zacks Rank #3 LAC has an expected earnings growth rate of 20% for the current year.
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Piedmont Lithium Inc. (PLL) : Free Stock Analysis Report
Albemarle Corporation (ALB) : Free Stock Analysis Report
Sociedad Quimica y Minera S.A. (SQM) : Free Stock Analysis Report
Lithium Americas Corp. (LAC) : Free Stock Analysis Report
Livent Corporation (LTHM) : Free Stock Analysis Report
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