Lithium stocks have been some of the most volatile in 2021. One reason for this is their use in the production of lithium-ion batteries, which remain the dominant battery style for electric vehicles (EVs). However, for a number of reasons, including the global chip shortage, the EV revolution is stalled.
But in addition to semiconductor chips, this is an industry that will need lithium. And since lithium is used for a variety of electronic devices including the batteries in our smartphones, demand should remain strong. According to Statista, demand for lithium will reach 820,000 tons in the next few years; that’s approximately double its current level.
But getting there won’t be easy. Lithium is the 33rd most abundant element in the world. However, mining it in a cost-effective manner is a challenge. In this article, we’ll look at three companies that are at the forefront of this sector and have proven abilities to bring lithium to market.
One trait that all of these stocks share is that they are currently trading at or above the 12-month consensus price target of the analyst community. This is likely a reflection of the supply chain difficulties that will continue to plague the industry in the near term. However, buying lithium stocks is a long-term play and these stocks are likely to be around for the long haul.
A Company With a Strategic Partnership
The first company we’re recommending is Livent (NYSE: LTHM). Timing is important in investing and Livent went public in October 2018. But it took investors about a year to start realizing the potential of lithium. From May 24, 2019 until February 2020, LTHM stock nearly doubled. Then the Covid-19 pandemic took many mining operations off-line and with it the price of many lithium stocks.
But since the 2020 election, LTHM stock has been on a roll. And this shows the optimism that investors have for the company which derives 61% of its revenue from lithium carbonate, lithium hydroxide and lithium chloride. These are all essential to the EV market.
The company has a supply agreement with Tesla (NASDAQ: TSLA) that expires at the end of 2021. The company says that it “continues to discuss the framework for a long-term supply partnership” with Tesla. If that comes to pass, investors may begin to feel more comfortable buying stock in a company that has shown it difficult to turn a profit.
A Company That May Be an Acquisition Target
Speaking of Tesla, our next company is Lithium Americas (NYSE: LAC) which may be an acquisition target for Tesla. For starters, Lithium Americas is a small-cap Canadian miner with a market cap of around $2.6 billion. One of the company’s projects is located in Nevada where Tesla already has its Gigafactory. And the company also has a project in Argentina’s “lithium triangle.”
Both of these are lending support to the idea that Tesla could decide to make a strategic acquisition that would supercharge its battery production plant. But even if Tesla doesn’t become a partner, there should be ample room in the EV market to accommodate many lithium producers. And that makes Lithium Americas a lithium stock to consider.
An Established Company
The last stock on our list is Albermarle (NYSE: ALB). Albermarle is not a mining company which means it’s not a pure-play in the sector. The company is a specialty chemicals maker that uses lithium salts to produce the compounds such as lithium carbonate and lithium hydroxide which are essential to lithium-ion batteries.
But there’s another reason to consider Albermarle. Of the three companies on this list, it’s the least speculative. It currently has a market cap of 29.48 billion. And the company is a Dividend Aristocrat having increased its dividend in each of the last 27 years.
Before you consider Albemarle, you'll want to hear this.
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