Lithium stocks have bottomed and key variables suggest a rebound is likely to occur
Lithium stocks have lost popularity in the past year amid a broad-based industry drawdown. However, successful investing often requires being contrarian. Although risky, contrarian investing allows investors to capture value and lock in lifetime returns.
Despite its allure, contrarian investing can lead investors into value traps. However, the lithium industry is set to grow by 14.8% until 2031, making a value trap extremely unlikely. Moreover, busted growth can be left out of the conversation as the lithium end market’s resilience phases in systematic support.
Methodologically, I screened for lithium stocks overlooked by market participants. Moreover, I ensured each asset possesses the necessary qualitative and quantitative factors to thrive in the coming years.
Without further ado, here are three lithium stocks worth considering.
Arcadium Lithium (ALTM)
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Arcadium Lithium (NYSE:ALTM) is a new entity formulated from the Livent and Alkem merger.
The firm produces lithium chemicals with an emphasis on battery-grade lithium hydroxide, lithium carbonate, butyllithium, and high-purity lithium metal for electric vehicles. Moreover, adjacent business opportunities are possible in the next few years amid rapid expansion in the lithium industry’s ecosystem.
A big draw towards this company is the aforementioned merger. The business combination is set to deliver between 40,000 and 50,000 tonnes of lithium equivalent ounces this year. Moreover, Arcadium’s management anticipates up to $80 million in synergy cost savings for the year.
ALTM is a high-quality value stock. Its net profit margin of 37.41% translates into a price-to-earnings ratio of merely 6.9x. Thus, investors are presented with an outlying opportunity.
Albemarle (ALB)
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ALB (NYSE:ALB) stock has shed more than 30% of its market value in the past six months. This is primarily due to Albemarle’s announced $2 billion equity offering and sluggish lithium prices. However, ALB stock’s recent drawdown has opened up a value gap; here’s why.
In spite of its recent headwinds, Albemarle remains the largest lithium producer on the planet. On top of that, it owns two segments, namely production and energy storage, allowing it to leverage vertical integration. Sure, the lithium market has slowed since interest rate hikes have occurred. However, a pending interest rate pivot means reversion of lithium prices is likely, which could allow Albemarle to reach stardom.
Furthermore, Albemarle has plans to expand its existing asset base. The company is commissioning a lithium conversion facility in Meishan, China. The facility is set to deliver 50,000 tonnes of lithium hydroxide per annum. This gives Albemarle added capacity and access to China’s high-growth electric vehicle (EV) market. I would not be surprised if Albemarle gears its capital expenditures roadmap to tap into additional midstream projects.
ALB stock has a non-GAAP P/E ratio of 5.42x and a price-to-book ratio of 1.5x. Call me ambitious, but I think these metrics will coalesce with a fundamental rebound and deliver robust returns to ALB’s shareholders.
Sociedad Química y Minera de Chile (SQM)
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Sociedad Química y Minera de Chile (NYSE:SQM) stock is perfect for a long-term investor willing to bear short-term risks.
Sociedad Quimica Y Minera DE Chile is yet another lithium company facing pricing headwinds. For example, while SQM’s fourth-quarter sales volumes increased by 19% year-over-year, its value-based sales decreased by 73%. However, as mentioned before, lithium prices will likely rebound when the economy hits its next expansionary phase. Thus providing SQM the necessary latitude to enhance its earnings.
Furthermore, significant expansion is on the horizon for SQM. The company has committed to a $1.7 billion capital expenditures roadmap until 2025, aimed at its ongoing 310,000 metric tonnes production expansion in Chile. Moreover, SQM is reinvesting in its lithium hydroxide facility in China, which has a capacity of 30,000 tonnes per annum.
Sociedad Quimica Y Minera DE Chile’s fundamentals paint a bright picture, and its P/E ratio of 6.82x suggests we are looking at a grossly undervalued stock. I would cash in before it’s too late!
On the date of publication, Steve Booyens 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.
