Energy & Critical Metals
The 3 Best Lithium Stocks to Buy for February 2023
Even as the electric vehicle industry faces some near-term headwinds, it’s a good time to accumulate some of the best lithium stocks. With the anticipation…
Even as the electric vehicle industry faces some near-term headwinds, it’s a good time to accumulate some of the best lithium stocks. With the anticipation of sustained growth in the adoption of EVs, the lithium supply gap is expected to widen in the coming years.
This will translate into higher lithium prices and will directly benefit lithium mining companies. Just to put things into perspective, it’s expected that the lithium supply gap will be acute by 2035.
The supply will be at least 1.1 million tons less (24% lower) than the demand. Another study indicates that lithium demand is expected to swell to four million metric tons by 2030 from 500,000 metric tons in 2021.
The investment opportunity is therefore not just for the next few years, but for the coming decade. The best lithium stocks have been resilient in challenging market conditions. With several positive catalysts, I expect these lithium stocks to outperform.
Let’s discuss the reasons to be bullish on these best lithium stocks.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is among the best lithium stocks to buy. After having trended higher by 35% in the last 12 months, the stock seems destined for further upside in 2023.
For Q3 2022, Albemarle reported revenue and EBITDA growth of 152% and 447% respectively on a year-on-year basis. The surge in EBITDA was driven by higher lithium sales coupled with improved price realization. For the full year, Albemarle has guided for EBITDA growth in the range of 280% to 300%.
It’s worth noting that the company’s lithium conversion capacity was 85ktpa in 2021. Capacity is expected to be in excess of 200ktpa by 2025. Therefore, with sustained volume growth, the cash flow outlook is robust.
As cash flow swell, Albemarle’s credit metrics have improved. For 2022, the company has guided for a leverage of 0.65. This allows the company to aggressively invest in growth projects. At the same time, dividend growth is likely.
Lithium Americas (LAC)
Source: Bjoern Wylezich/ShutterStock.com
Another name among the best lithium stocks to consider is Lithium Americas (NYSE:LAC). With several positive developments in the last few months, the stock is attractive for the foreseeable future.
In a recent development, Lithium Americas has partnered with General Motors (NYSE:GM). The latter will make an equity investment of $650 million to pursue joint development of the Thacker Pass project. It’s estimated that the asset can support the production of one million EVs on an annual basis. With this partnership, financing is secured for the company’s key asset.
In November 2022, Lithium Americas also announced the split into two companies. Lithium Americas will focus on U.S. assets.
On the other hand, Lithium International will focus on lithium assets in Argentina. Currently, Lithium Americas holds 44.8% interest in Caucharí-Olaroz and 100% interest in the Pastos Grandes lithium brine project in Argentina. The split is likely to create value.
Piedmont Lithium (PLL)
Source: T. Schneider / Shutterstock.com
Piedmont Lithium (NASDAQ:PLL) is another exploration-stage lithium company in the United States. PLL stock has surged by 50% in the last 12 months. Considering the positive outlook for the industry and the company’s assets, I expect the uptrend to sustain.
As an overview, Piedmont has 100% ownership in Carolina and Tennessee lithium project. These projects have a combined net present value of $5 billion. Additionally, the company has 50% interest in a Ghana project with an NPV of $1.3 billion and 35% economic interest in the Quebec lithium project.
Clearly, with a quality asset base, PLL stock is attractive. It’s also worth noting that the first production is due in 2023 and that’s a potential stock upside catalyst. From a revenue perspective, Piedmont has an agreement with Tesla (NASDAQ:TSLA) to deliver spodumene concentrate through 2025.
Given the tight demand-supply scenario for lithium, securing long-term contracts is unlikely to be a challenge. Cash flow visibility will therefore be robust once production commences from key assets.
On the date of publication, Faisal Humayun 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.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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