Lithium Landscapes: 3 Stocks Fueling the Green Energy Transition
Lithium producers and lithium stocks have been badly hit as Chinese lithium prices plunged an incredible total of about 75% between November 2022 and November 2023. However, in the wake of the tremendous decline of both the mineral’s prices and lithium stocks, multiple firms are starting to be bullish on the sector. For example, research firm Morningstar believes that four major miners are meaningfully “undervalued,” while Fitch Solutions forecasts that “a lithium shortage could hit as early as 2025,” OilPrice reported last month. These businesses are the stocks fueling the green energy transition.
Indeed, Fitch is estimating that China’s “ lithium demand for EVs alone” will surge by a mean total of 20%, while its lithium production will only climb 6% annually during those years. If the actual totals come even close to those estimates, lithium prices will surge tremendously over the long term, taking lithium stocks with them. For those who want to cash in on those gains, here are three top lithium producers to buy.
Albemarle (ALB)
Goldman Sachs recently predicted that the United States-based Albermarle (NYSE:ALB), one of the world’s largest lithium producers, would be among the “top third” of S&P 500 stocks in terms of sales growth in 2025. Specifically, Goldman predicts that ALB’s sales will jump 18% in 2025.
And despite the sliding lithium prices, ALB’s top line still climbed 10.5% last quarter versus the same period a year earlier, driven by higher sales of lithium for use in energy-storage batteries. However, the lithium price declines did take a toll on ALB, as its EBITDA, excluding certain items, slid to $453.3 million from $1.19 billion.
Moreover, the company predicts that its sales volumes i.e. the amount of lithium that it will sell, will jump at a compound annual growth rate of 20%-27% between 2023 and 2027. As a result, even relatively small increases in lithium prices will cause its top and bottom lines to soar over the long term.
Also noteworthy is that the shares have a very low and a very attractive forward price-erarnings ratio of 8.7 times.
Livent (LTHM)
Livent’s (NYSE:LTHM) operating income in the first nine months of 2023 came in at a very robust $340 million, and the company had $112 million of cash as of the end of Q3.
Seeking Alpha columnist Victor Dergunov estimates that Livent’s earnings per share could come in at $2 in 2024 and $3 in 2025 when lithium prices zoom higher. So LTHM stock is currently changing hands at just five times Dergunov’s 2025 earnings per share estimate.
For their part, Wall street analysts, on average, expect the company’s 2024 EPS to come in at $1.78. That puts the company’s forward price-earnings ratio at just 8.3 times.
By almost any metric, LTHM stock is extremely cheap at this point if you assume (correctly, in my view) that lithium prices will climb over the longer term as production growth sharply decelerates and EV growth accelerates.
Global X Lithium & Battery Tech ETF (LIT)
Over the longer term, the Global X Lithium & Battery Tech ETF (NYSEARca:LIT) should get a big lift from accelerating EV sales globally.
The well-regarded research firm Gartner in September predicted that worldwide electric car sales would climb to 17.85 million in 2024 from nearly 15 million in 2023, while electric van sales would jump more than 50% year-over-year to 350,000.
Moreover, the firm predicted that, by 2027, the prices of EVs would be equal to those of gasoline-powered vehicles. As a result, I believe that the adoption of EVs will surge tremendously by that year.
Of course, battery manufacturers will benefit tremendously from the latter development. As I mentioned earlier, lithium producers will get a big lift from both demand acceleration within the next few years and decelerating supply growth.
Therefore, LIT stock, which features the world’s leading battery and lithium producers, looks like a great, safe pick for long-term investors at this point,.
And with the shares down 33% since early February, I believe that the stock’s valuation is quite favorable for long-term investors.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
