Thinking with a long-term view, these three lithium stocks should deliver market-crushing returns
Lithium stocks continue to be in dire straits well into 2024. The price for the rare earth mineral, lithium carbonate, has fallen 11.4% since the start of the year. On a similar point, the prized rare earth mineral’s price plummeted more than 81% just in 2023 alone. There are a couple, relevant market forces to unpack here.
On the one hand, lithium producers had been stockpiling supply of lithium carbonate due to high demand for electric vehicles in 2021 and 2022, leading to overcapacity, While, on the other hand, waning demand for electric vehicles (EVs) as consumers stopped buying new cars due to higher interest rates and other problematic macroeconomic machinations led to less demand for lithium from end-markets, including EV manufacturers and battery makers.
Fortunately, with interest rates slated to come down significantly in the second half of this year as a result of the recent rounds of macroeconomic data, electric vehicle makers and lithium producers have something to be optimistic about. Lower interest rates could be a distinct demand inducer for new EVs.
Below are three lithium stocks to make long-term bets on for crushing returns.
Ganfeng Lithium (GNENF)
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Ganfeng Lithium (OTCMKTS:GNENF) is a lithium miner that actually has exposure to various aspects of the rare earth mineral’s supply chain. That is, from lithium resource development, refining and processing to battery manufacturing and recycling, Ganfeng has deep exposure. Moreover, electric vehicles, energy storage devices, 3C products, chemicals and pharmaceuticals all rely upon its lithium products.
Being the world’s third largest lithium producer, Ganfeng Lithium maintains a number of large lithium developments. This includes Argentina’s Cauchari-Olaroz Salt Lake Project, which the company helped put into operation in 2023 – Ganfeng plans for the mine to have a production capacity of 40,000 tons of lithium carbonate.
Ganfeng recently increased its stake in one of the world’s largest lithium projects in Mali, West Africa in a $342 million deal. Despite churning out a large profit loss swing, Ganfeng’s prospects remain intact as it continues to maintain its leadership in the lithium supply chain.
Sociedad Química y Minera de Chile (SQM)
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Sociedad Química y Minera de Chile (NYSE:SQM) is diversified mining company that also has outsized exposure to lithium carbonate resource development. Like many lithium firms, SQM has suffered from waning demand in lithium end-markets, namely, electric vehicles. In fiscal year 2023, the Chilean miner reported a substantial revenue decline of 30.3%, from $10.7 billion in 2022 to $7.5 billion. Despite depressed lithium prices, SQM continues to prepare for the long-term tailwinds that EVs will continue to bring to the lithium sector. For example, the Chilean miner plans to choose one or more direct lithium extraction (DLE) technologies over the next 12 months to be able to expand production of lithium carbonate in the Salar de Atacama.
The Chilean government becoming more active in domestic lithium production spooked investors in 2023, but investors have internalized and accepted the news. The state-owned National Copper Company (CODELCO) has been negotiating with SQM to trade their control of their lithium operations for the possibility of expanded production. Analysts have responded positively to this news as, from their point of view, this is the best outcome that could have occurred.
SQM trades at 8.0x forward earnings, which makes the lithium producer stock a enticing value play.
Albemarle (ALB)
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Albemarle (NYSE:ALB) is the final lithium stock to consider for long-term investment. The company has significant exposure to mining operations in Chile and is one of the two lithium producers in Chile, the other, of course, being SQM. Albemarle has planned to expand production at one of the world’s largest lithium deposits – Salar de Atacama, which is located in northwestern Chile in the country’s largest salt flat. The lithium producer expects to be able to boost production via the use of direct lithium extraction technology that is supposed to be environmentally friendly. The Chilean government is requiring its top lithium producers to take better measures to protect the environment before they can expand production, and ALB seems committed to that.
Albemarle has struggled with falling lithium prices. In 2022, for example, the lithium rush led to a 120% year-over-year increase in revenue from 2021, yet in 2023, Albemarle reported revenue growth 31%, robust but not as significant as before. The end of the lithium slump will be tied to the stimulation of EV demand. Once that picks up, ALB shares should outperform the market. Now ALB trades at 34.9x forward earnings.
On the date of publication, Tyrik Torres 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
