The rally in lithium stocks hasn’t materialized. In fact, right now investors who started a long position in the last 12 months are sitting on losses.
The issue is one of supply and demand. On the supply side, some key projects in countries like Argentina and China are delayed. That should be bullish for lithium prices.
However, the demand side has not worked out as expected. One of the critical applications for lithium comes from electric vehicles. As investors are finding out, the tipping point for EV sales is still years away.
The good news is that in several years, EV manufacturers will have the facilities to produce EVs at scale. That will require the lithium-ion batteries that are feeding the demand for lithium. At that time, those key projects should be up and running.
The question is what will 2024 bring? For the purpose of this article, we’ll take a bullish outlook. According to Morningstar, increased demand could bring the average price of lithium to around $30,000 per metric ton through 2030.
With many lithium stocks down sharply in 2023, it’s not hard to see this sector moving sharply higher if that forecast is correct. Here are three candidates for your watchlist.
Albemarle (NYSE:ALB) is a leading global producer of catalyst solutions and performance chemicals. One of its business units involves developing and manufacturing lithium compounds including lithium carbonate, lithium hydroxide and lithium chloride.
Standards and Practices (S&P) Global Market Intelligence projects that global demand for lithium chemicals will more than double between 2022 and 2026. One of the key areas to watch will be China, which has the third largest store of global lithium reserves. In 2017, Albemarle acquired lithium hydroxide and lithium carbonate conversion assets in China.
That makes it easy for investors to connect the dots between a growth in lithium demand and growth in ALB stock, which is down more than 51% in the last 12 months. To be fair, there have been some self-inflicted wounds such as its now-abandoned attempt to acquire Liontown Resources Limited.
The reasons why Albemarle walked away from the deal are unclear. However, it should allow investors to focus on the company’s current fundamentals which include a forward P/E ratio of just five times. The company reports earnings on Nov. 1, 2023, and another double beat could be the fuel that the bulls are looking to find.
Next up on this list of lithium stocks is Livent (NYSE:LTHM). The stock is down about 49% in the last 12 months, but there’s an important caveat. Much of that decline has come since July 2023. That’s immediately after a fire at Livent’s Bessemer City manufacturing plant in North Carolina.
This looks like a case of a sell-off becoming overdone. With short interest hovering around 15%, this could be a case of traders using LTHM stock as a hedge in a pairs trade. There could be a belief that demand for EVs may be overstated.
Whatever the reason, it’s important to consider the overall fundamentals. Livent has beaten revenue and earnings in the last two quarters and is expected to grow earnings. Furthermore, even though that growth is a somewhat meager 1.9%, analysts give LTHM stock an 80% upside. With a forward P/E of seven times, it may be time to give this one a speculative buy.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is an outlier among lithium stocks because the company has missed on revenue and earnings its last two quarters. That, and rumors that Chile was going to nationalize the lithium industry was enough to drag SQM stock down by more than 47% in the last 12 months.
As Ian Bezek recently wrote for InvestorPlace, the weightier issue for SQM stock has been less demand from China. The issue is that whereas EV demand has yet to hit critical mass in the United States, the same can’t be said of China. So a lack of demand has left that market oversupplied.
However, you might expect that the stock would have performed worse. Instead, SQM is performing no worse than some of its better-performing peers. Furthermore, short interest on the stock is low so retail investors won’t have that additional hurdle to clear.
On the date of publication, Chris Markoch did not have (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.