Company / Analytics

Analytics, 12 April 2023

6 Best Lithium Stocks To Consider In 2023

Lately, lithium, the elemental metal, has become a highly sought-after commodity. This metal is a crucial component in producing lightweight, high-energy batteries. With the skyrocketing annual growth of electric vehicle (EV) sales, which rely on lithium batteries, analysts predict that global EV sales will increase by 57% year-over-year in 2022.

The surging demand for EV batteries has caused the price of lithium to soar. In the 12 months leading up to September 2022, the price of lithium quadrupled, and it would have been even higher if the value of the US dollar had not surged. However, investing in lithium is not for the faint of heart, as with any investment in basic materials and metals. High demand for a material used in manufacturing does not automatically lead to higher sales and profits for a company. Supply also plays a significant role in determining the market price of basic material, and if supply exceeds demand, prices can fall. This could result in lower sales for the material producer, even if overall demand is growing. Also, as with all mining operations, establishing new lithium projects can be costly.

Nevertheless, lithium stocks have performed well over the past five years, and prices have risen.

Albemarle Corp. (ALB) stock

Albemarle, the largest lithium producer in the world, tops the list. It operates the sole active lithium mine in the U.S. located in Silver Peak, Nevada, and the metal makes up over half of its revenue. Albemarle’s sales have grown by 30.8% in the last year, and its expected EPS in 2022 shows an increase of 428.2% year-over-year.

With a decade-long track record of positive earnings growth, analysts predict a 27.6% EPS growth rate next year, and average annualized EPS growth of 77.2% over the next five years. Morningstar rates Albemarle with a financial health grade of B.

Currently, the stock is up by 5.8% over the last year and stands just 8% below its 52-week high.

Ganfeng Lithium Group Co. Ltd. (GNENF) stock

On the other side of the Pacific, Ganfeng Lithium dominates as China’s largest producer of base materials for lithium battery manufacturing. Unlike most other competitors, Ganfeng is vertically integrated, with operations focused on extraction, processing, battery manufacturing and battery recycling.

The company has seen strong earnings per share (EPS) and sales growth over the last four quarters, jumping more than 432% and 265%, respectively. Based on the company’s earnings performance this year so far, it should top 100% year-over-year EPS growth in 2022.

Ganfeng has reported three years of growing sales and earnings—it’s the strongest company on our list when it comes to sustained growth. This year should mark four years of growth in both categories.

But Morningstar gave the company a C for its financial grade. This is the lowest grade on our list, but the company is still slightly investable. Morningstar looks at factors, such as financial leverage, balance sheet health and cash flow statements to develop its financial health grade.

The stock has been on a downtrend since mid-2021, trading about 45% below its 52-week high.

Livent Corp. (LTHM) stock

Livent Corp. has its origins in the Lithium Company of America, dating back to the 1940s. Today, Livent operates in Argentina, Canada, and the U.S., mining lithium and refining it into intermediate materials utilized in the production of batteries for electric vehicles and handheld devices.

Over the past 12 months, Livent’s sales have grown by 55%, and the company is experiencing triple-digit earnings per share (EPS) growth in comparison to the previous year. This year is projected to be the company’s most successful year since its spinoff from FMC Corp. (FMC) in 2018.

Analysts anticipate a 29% increase in EPS next year, followed by average annualized earnings growth of 1% over the next five years. The firm’s financial health rating from Morningstar is a C, implying that its balance sheet is not the strongest.

Since 2021, LTHM’s stock has fluctuated between $20 and $35. It is currently 16% below its most recent all-time high but is still in the higher end of its range.

Lithium Americas (LAC) stock

Lithium Americas is a speculative investment in the lithium industry, as it currently lacks earnings, revenue, or significant lithium production. However, the company is developing the largest lithium deposit in the U.S. at its Thacker Pass mine, which is why we include it on this list.

While Albemarle currently operates the only active lithium mine in the U.S., many other mines in the U.S. and Canada are still years away from production. The Inflation Reduction Act of 2022, introduced by the Biden administration, provides valuable subsidies for EV buyers and automakers. To qualify for these subsidies, EV batteries must use raw materials from North America or countries with which the U.S. has a trade agreement. This makes lithium resources being developed in the U.S. by companies like LAC and Piedmont Lithium more valuable. These factors suggest that LAC could become a significant player in the lithium production game.

Despite reporting negative EPS and negligible sales for over a decade, analysts are projecting positive EPS of $1.01 per share in 2023, with estimated sales of $307 million. Morningstar gives Lithium Americas a B for financial health. While LAC has increased by 175% over the past five years, it has fallen 18% year-to-date and is currently 36% below its all-time high. The stock has traded between $20 and $40 since late 2021.

Piedmont Lithium (PLL) stock

Piedmont is an emerging lithium miner that is in the early stages of developing its resources in comparison to Lithium Americas. The company is presently focused on developing lithium mining projects in North Carolina and Tennessee in the United States, as well as in Canada and Ghana overseas.

Piedmont anticipates that lithium mining and refining operations will commence in Quebec in 2023, followed by Ghana in 2024, Tennessee in 2025, and North Carolina in 2026. However, some of these predictions are subject to challenging local and national permitting reviews.

At the moment, PLL has no sales and has reported negative EPS for the last five years, which is expected to persist until 2022, but the situation could change in 2023. Analysts predict an EPS of $3.41 per share and an estimated $119 million in sales in 2023.

Piedmont Lithium stock stock price has ranged between $85 and $45 since the start of 2021. It is down 11% over the last year and 26% off the 52-week high, hovering around the mid-point of the long-term range.

Li-Cycle Holdings Corp. (LICY) stock

Li-Cycle Holdings is a recent entrant to the industry, having gone public in 2021. Its business involves the recycling of batteries to reclaim lithium and other materials. With limited financial data available due to its short tenure as a public company, there is no clear indication of when it will become profitable, although its sales have increased by 102% over the past year.

In 2023, sales are expected to increase sevenfold to $127 million, which is an impressive growth rate. However, investors should be cautious as Morningstar has given the company a C rating for its financial health.

LICY’s stock price has been declining since late 2021 and is currently 60% below its most recent 52-week high.

Investor’s note

Investing in mining companies that produce base materials and chemicals can be a rollercoaster for investors due to their volatility and susceptibility to sharp fluctuations based on the market price of the material being mined and sold. While the global demand for batteries is promising for lithium battery producers, investors should expect plenty of ups and downs along the way.

To mitigate the risk of wild swings in value, it’s worth considering purchasing a lithium ETF such as the Global X Lithium & Battery Tech ETF (LIT 0.84%) or investing in a basket of lithium stocks like the ones listed above. Given the volatile nature of lithium production, it’s advisable to keep any investment in this niche of the mining and chemicals industry small.

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