Lithium stocks have plunged on the back of a steep correction in lithium. It’s worth noting that the markets tend to react to the extremes. Currently, the sentiment for lithium stocks is bearish, and quality stocks seem deeply undervalued. I believe this is a golden opportunity to consider some lithium stocks to buy for the long term.
The most important point to note is that the correction in lithium is temporary. Analysts expect that by the end of 2025, there will be a “modest deficit” of 40,000 to 60,000 tonnes of lithium carbonate equivalent. Further, the deficit is expected to increase to 768,000 tonnes by the end of 2030.
If this estimate holds true, the upside in lithium is likely to be significant in the next five years. This will also translate into a big rally for some of the best lithium stocks. This column focuses on three lithium stocks to buy that have the potential to make millionaires by the end of the decade.
Lithium Americas (LAC)
Source: Wirestock Creators / Shutterstock.com
From October 2023, when it reached a high of $12.4, Lithium Americas (NYSE:LAC) stock plunged to its current level of $2.8. The big correction is a golden buying opportunity for long-term investors. Once sentiments reverse, I expect LAC stock to skyrocket from deeply undervalued levels.
To put things into perspective, Lithium Americas commands a market valuation of $610 million. This seems miniscule when compared to the Thacker Pass asset potential. The lithium asset is estimated to have an after-tax net present value of $5.7 billion. Once production commences in 2027, the asset will likely deliver robust EBITDA and free cash flows.
One concern last year was related to financing the construction of the project. In 2023, General Motors (NYSE:GM) signed an agreement to infuse $650 million in liquidity in two tranches.
However, the major financing development came this year, with the U.S. Department of Energy providing a conditional commitment for a $2.26 billion loan. Additionally, Lithium Americas diluted equity to raise $275 million. Therefore, the focus in 2024 and beyond is likely to be on completing the project within the stipulated time.
Piedmont Lithium (PLL)
Source: T. Schneider / Shutterstock.com
Piedmont Lithium (NASDAQ:PLL) is another lithium miner trading at a massive valuation gap. PLL stock has plunged 83% in the last 12 months and looks oversold. I would expect a sharp bounce-back from current levels.
It’s worth noting that Piedmont Lithium has a current market valuation of $210 million. The company’s Quebec assets (25% ownership) have an after-tax NPV of $250 million. The NPV of the smallest asset is higher than the current market valuation.
Further, the Carolina, Tennessee and Ghana assets have a combined after-tax NPV of $5.2 billion. PLL stock is deeply undervalued, and 20x to 30x returns from current levels are likely in the long term.
In my view, there are two catalysts for a sharp reversal rally. First, lithium trending higher after a deep correction. Further, Piedmont is securing financing for its assets in Carolina and Tennessee (both 100% ownership). Both these assets promise a steady-state annual EBITDA of $835 million.
Albemarle Corporation (ALB)
Source: IgorGolovniov/Shutterstock.com
Albemarle Corporation (NYSE:ALB) is among the bigger names in the industry. However, ALB stock has not been spared and has corrected by 57% in the last 12 months. A part of the correction has been due to equity dilution in March, when the company raised $2.3 billion.
With Albemarle focused on conserving cash and maintaining a strong balance sheet, it’s a good time to accumulate. For 2024, Albemarle has guided for $280 million in productivity benefits.
Regarding fundamentals, Albemarle reported a liquidity buffer of $3.7 billion as of March. Further, with low leverage, Albemarle will likely emerge from challenging times with high financial flexibility.
This will allow Albemarle to make aggressive investments in lithium recovery. I must add that between 2022 and 2027, Albemarle has maintained its guidance for lithium sales volume growth at a CAGR of 20%. Once lithium trends are higher, the volume growth will translate into a significant upside in cash flows.
On the date of publication, Faisal Humayun did not hold (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.
