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4 Lithium Stocks to Watch as Creeping Supply Shortages Drives Prices Higher

Driven by demand from electric vehicles, global lithium price has been trending higher, which is good news for lithium stocks…

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Driven by demand from electric vehicles, global lithium price has been trending higher, which is good news for lithium stocks.

SQM, a producer of the rechargeable battery ingredient, believes that demand is accelerating faster than previously anticipated. SQM further believes that total lithium demand could surpass 1 million tons in 2025. With electric vehicle adoption seemingly at an inflection point, lithium stocks are likely to have a multi-year tailwind.

According to the International Energy Agency, three million electric cars were registered in 2020. The IEA further believes that there is likely to be 145 million electric vehicles on road by 2030. This is an indication of the impending demand for lithium. In the medium-term, S&P estimates that global lithium demand will more than double by 2024.

Given these estimates, lithium stocks are attractive for the portfolio. Let’s talk about four lithium stocks that are positioned to trend higher, backed by revenue and cash flow growth.

  • Lithium Americas (NYSE:LAC)
  • Piedmont Lithium (NASDAQ:PLL)
  • Albemarle Corporation (NYSE:ALB)
  • Standard Lithium (NYSE:SLI)

 

Best Lithium Stocks to Buy: Lithium Americas (LAC)

a lithium mineSource: Shutterstock

LAC stock seems to be in a renewed uptrend. The stock has trended nearly 30% higher over the last month. Considering the industry outlook and the company’s assets, the stock is likely to remain in an uptrend.

The company’s lithium brine project in Argentina, Caucharí-Olaroz, has a capacity of 40,000 tonnes per annum (tpa). The project is on track for mid-2022 production. It’s also worth noting that Lithium Americas expects annual production of 40,000tpa to sustain for the next 40 years.

Over the life of the project, the average annual EBITDA is likely at $308 million.

Furthermore, the company’s Thacker Pass project has a mine life of 46 years. Production from the assert is expected at 60,000tpa. At full production capacity, the project is expected to deliver an annual EBITDA of $520 million.

Clearly, Lithium Americas has quality assets. Once these assets are in production, cash flows can be robust. Lithium price has also been gradually trending higher and this can further boost the EBITDA outlook.

It’s also worth noting that the company has a strong balance sheet with $500 million in cash. Both the key projects are fully financed through the cash buffer and credit facilities. Once production commences in mid-2022, LAC stock might be positioned for a big rally.

Piedmont Lithium (PLL)

rows of lithium ion batteriesSource: Lightboxx/ShutterStock.com

PLL stock is another quality name among lithium stocks. The company has been building a diversified asset base, which is likely to be a long-term cash flow machine.

PLL stock was in consolidation mode around the $50 level, but has begun a break-out on the upside and appears headed toward $60. It trades today at around $56 and touched $80 earlier this year.

Currently, the company has a 100% owned project in North Carolina. The project is likely to deliver $400 million in annual EBITDA. The project’s present net value is estimated at $1.9 billion.

Further, the company has 39.6% economic interest in the Quebec project. While the economics of the project are still to be determined, the asset has resources of 68 million tonnes per annum (Mtpa).

Piedmont Lithium also has a 50% project interest in an asset in Ghana. With mineral resources of 14.5Mtpa, the project has a net present value of $345 million.

It’s worth noting that PLL stock currently has a market capitalization of $870 million. Considering the NPV of key assets, the stock looks attractive. Once the assets start delivering EBITDA and cash flow, the upside potential is likely to be meaningful.

From a financial perspective, the company reported cash and equivalents of $167.2 million as of March 2021. It’s likely that Piedmont Lithium will need additional funding through debt or equity.

However, dilution is not a concern considering the EBITDA visibility once the company starts delivering lithium spodumene concentrate to Tesla (NASDAQ:TSLA).

Best Lithium Stocks to Buy: Albemarle Corporation (ALB)

Albemarle (ALB) logo on a mobile phone screenSource: IgorGolovniov/Shutterstock.com

With ambitious growth plans, Albemarle is among the most attractive lithium companies. ALB stock has also been in a steady uptrend with 63% returns for year-to-date 2021.

Currently, the company derives 40% of net sales from lithium. However, the sales contribution from lithium is expected to increase in the coming years. Albemarle has guided for sales growth at a CAGR of 24% to 28% over the next five years.

Further, the company expects adjusted EBITDA from the lithium segment to be $1.8 billion in 2026. For the same year, the company has guided for lithium adjusted EBITDA margin of 48%. Clearly, the segment is likely to be a cash flow machine in the next few years.

It’s also worth noting that ALB stock has an annualized dividend of $1.56 per share. Given the revenue expectation and the EBITDA margin upside, dividend growth is likely on a sustained basis. This is another reason to like ALB stock even when it trades at seemingly expensive valuations.

Along with revenue growth, Albemarle also expects to deleverage in the next few years. In 2020, the company reported net-debt-to-adjusted EBITDA of 3.4. By 2026, the company expects leverage to decline to 1.0 (mid-range of guidance).

Overall, Albemarle has strong fundamentals with the best of growth still to come. ALB stock is therefore worth holding in the core portfolio for the next few years.

Standard Lithium (SLI)

a pile of lithiumSource: Bjoern Wylezich/ShutterStock.com

Among the smaller names, SLI stock looks interesting. The company has the largest reported lithium brine project in the United States. The project has an initial capacity of 20,900 tonnes with a targeted expansion to 70,000tpa.

It’s worth noting that the company has a strategic partnership with Lanxess (OTCMKTS:LNXSF). With a strong partner, the company is well-positioned from a funding and project execution perspective.

One of the differentiating factors for the company is a disruptive lithium extraction technology. The company believes that the technology is the key to unlocking significant resources.

Standard Lithium is also pursuing resource development of over 30,000 acres of separate brine leases located in southwestern Arkansas. Additionally, the company has 45,000 acres of mineral leases located in the Mojave Desert in San Bernardino County, Calif.

These projects provide medium-term exploration and reserves upside visibility. SLI stock therefore looks attractive at a current market capitalization of $966 million. From highs of $9.09, the stock has corrected to current levels of $6.7. I won’t be surprised if the stock doubles in the next few quarters.

On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of 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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Energy & Critical Metals

Evergrande Auto Hasn’t Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

Evergrande Auto Hasn’t Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

While everyone has been focusing on Evergrande…

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Evergrande Auto Hasn't Sold A Single Car, But Has Enriched Its Founder And His Friends Plenty

While everyone has been focusing on Evergrande as a property developer, few know the story about how Evergrande Auto became worth $86.6 billion at one point without selling a single car. The company now trades at a fraction, about 4%, of its all time high. While shareholders were wiped out for the most part, insiders made out well. 

On Tuesday of this week, the company did what it does best. No, not make vehicles: pay insiders. Evergrande Auto "granted 323.72 million share options worth HK$1.26 billion to three directors and around 3,180 employees of the company," a new report from Caixin notes.

Founder Hui Ka Yan and "friends" in his circle have made out the best from the fallen company. How well have they done? One "friend" of the founder bought 80 million shares in the company before it was renamed as Evergrande Auto for HK$0.30 each. They then sold them all for HK$50 per share, netting the friend more than HK$4 billion.

Hey, it's great work if you can get it. 

Caixin reports that the primary purpose of Evergrande Auto was to raise capital for the group company Evergrande. While the parent company claimed it was investing some 47 billion yuan into the auto company, analysts are starting to wonder if the market funded these investments instead. 

One analyst told Caixin: “Evergrande Auto had raised 30 billion yuan in two rounds, which means that the company mostly used investors’ money — instead of its own capital — to invest, and it managed to gain a high market value (for the auto company). Consequently, with its shares (in the auto company) at high price, it could use them as collateral to raise even more money.”

The company focused more on M&A than it did on making cars, the report says. For example, it bought a major stake in Xinjiang Guanghui Industry Investment Group Co. Ltd. for 14.5 billion yuan in 2018. As Caixin notes, that company is a stakeholder in China Grand Automotive Services Group Co. Ltd., which is one of the largest auto dealers in the country.

The stake was later sold off in 2019 when Evergrande needed cash. 

In 2019, Evergrande Auto's predecessor bought a 51% stake in National Electric Vehicle Sweden AB (NEVS) for $930 million, the report notes. Evergrande's stock price rose as a result. 

Part of the mechanics that helped Evergrande Auto's predecessor rocket higher included the fact that 18 shareholders owned 19.83% of the company's shares. When combined with the 74.99% of the issued shares held by the company, that only left 5.18% of Evergrande shares to be traded freely. 

Evergrande also acquired a 51% equity stake in Fangchebao Group Co. Ltd. using its shares. Fangchebao then brought in 17 investors in March 2021 that helped it raise capital at a valuation of HK$163.5 billion. Evergrande made HK$8.175 billion upon selling its shares.

Analysts, however, were baffled as to how Evergrande was able to bring in investors at the elevated valuation. The secret lied in a promise of a buyback from Evergrande.

One investor told Caixin: “What we valued was its valuation adjustment mechanism (对赌协议). If Fangchebao failed to go public within a year, Evergrande would buy back our shares at a 15% premium to the prevailing market price. At least, through this mechanism, we could get out money back.”

Those investors thought Evergrande could continue to push up Fangchebao's valuation and that Evergrande wouldn't fail within a year.

Another investor said: "However, Fangchebao was a relatively poor quality company, much worse than Evergrande Property Services. In Fangchebao’s case, it was better not to go public. It would be more troublesome after the listing because its poor performance would become public knowledge.”

Then there's the question of who truly benefitted from Evergrande's financial wheeling and dealing over the years. While investors and shareholders now suffer the consequences of the company's poor decision making, Hui Ka Yan's personal assets are now mysteriously being "transferred to new ownership", the report says. In fact, Hui was easily the single biggest beneficiary of the dividends paid by Evergrande from 2011 to 2020. 53 billion yuan of the 69 billion yuan that Evergrande has paid in dividends since it listed have gone to Hui.

You can read Caixin's detailed report here

Tyler Durden Thu, 09/23/2021 - 19:20
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Why Nio Stock Needs Some Help When It Comes to the Charts

The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify…

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The electric vehicle (EV) trade has finally cooled off, which is a good thing given how far it had run. It would be hard for Tesla (NASDAQ:TSLA) to justify a trillion dollar market capitalization or for these revenue-less SPAC stocks to keep soaring higher. Meanwhile, Nio (NYSE:NIO) is somewhere in between, with NIO stock performing quite well but not exactly on Tesla’s level.

Source: Robert Way / Shutterstock.com

At least, not yet.

In order to get there, the company will need to continue its domestic expansion in China and work on expanding globally. Tesla has been trading pretty well lately as it works on consolidating its massive gains over the last 18 months.

For Nio, though, the charts aren’t all that great right now. Combined with a high valuation, that has me on guard with the stock. For Nio, it needs the technicals to work in its favor in order for the stock to be attractive.

Trading Nio Stock

Daily chart of Nio stock
Click to Enlarge
Source: Chart courtesy of TrendSpider

A look at the chart highlights the recent struggles for Nio stock. Shares bottomed in early May along with most other growth stocks, as the bear market in this group came to end.

Nio ripped back toward $55 and the 61.8% retracement, but ultimately failed to hold those gains. It later failed to hold its major moving averages, while giving us an “ABC” correction down to the weekly VWAP measure.

This measure had been decent support throughout 2021.

However, after its rally back to the 21-day and 21-week moving averages, NIO stock gave us the “D” leg of that correction, resulting in the recent flush lower. We now see the stock below the weekly VWAP reading, as bulls scramble to see whether Nio can find its footing

If it can, we need to see Nio stock reclaim the August low at $36.24, as well as the weekly VWAP level. As of now, it’s currently undergoing a “monthly-down rotation” so long as it’s below $36.24. Back above those measures, and the high $30s could be in play.

On the downside, though, it’s possible we see the $31 to $32 area again. This area has been support twice amid two nasty corrections in Nio stock this year.

As a whole, Nio stock has been a leader amid growth stocks when the group is hot. But it has not done too well lately and it shows on the charts. So if the overall market struggles, this stock may too.

Breaking Down Nio

So many people will point to the fundamentals of a company like Nio without taking into consideration the valuation. Granted, I don’t put a lot of weight in the valuation either. At one point, valuations played a much larger role in the way that stocks behaved.

However, I think a few things have altered some of that Benjamin Graham thinking.

First, tech stocks blew the market wide open. No longer were companies having to follow traditional paths with only decent margins. Now software companies can routinely generate massive profit margins, while the tangible addressable markets (TAM) are significantly larger.

That’s allowed valuations to expand as well.

Second, the Fed’s low-rate and easy-money policies have forced investors to plow funds into equities. The returns in bonds (particularly internationally) and fixed income have dried up, forcing investors to chase returns in growth stocks — like Nio.

Is it healthy? Not necessarily, but this has been our reality for quite some time and it will likely remain that way for the foreseeable future.

I’m not calling for some great reckoning. A stock like Nio can continue to go up as long as it continues to deliver. But that remains a question mark.

While the company reported solid quarterly results last month, Nio’s July and August monthly auto deliveries disappointed investors. Furthermore, Nio was forced to trim its third-quarter delivery expectations.

Throw in Nio’s plan to raise $2 billion in stock, and it creates even more pressure on the stock price.

The Bottom Line on NIO Stock

It’s not that I have any specific gripe against Nio, but the facts are simple. For an automaker, the stock commands a high valuation and the company doesn’t have enough momentum in its underlying business right now. Thus, we need to see beat-and-raise quarters and delivery results in order to spur the stock higher. In line and disappointing results aren’t going to cut it.

Second, the charts don’t look very good. Back above $36.25 and my tone will change a bit. Otherwise, I remain defensive on Nio stock for the time being.

On the date of publication, Bret Kenwell 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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.

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ChargePoint Stock Deserves to Double from Here

Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in…

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Even with the electric vehicle revolution in full swing, not everyone sees the bull thesis for ChargePoint (NYSE:CHPT). Indeed, CHPT stock was cut in half from the the beginning of 2021 to mid-September, so clearly investor sentiment is at a low point.

Source: YuniqueB / Shutterstock.com

This could present an opportunity for folks with a tolerance for volatility. After all, the essence of contrarian investing is to get excited when others are fearful.

Could the pessimism surrounding CHPT stock be misplaced? The answer is probably yes, since the U.S. government is leaning toward policies that should benefit ChargePoint.

That, along with the company’s impressive revenue growth, indicate the share price is lower than it ought to be. Over the long run, this situation should correct itself, leading to excellent returns for patient shareholders.

A Closer Look at CHPT Stock

There’s something about the $20 price point — it’s like a magnet for CHPT stock in 2021.

Without a doubt, this must be frustrating for the long-term stockholders. As you may recall, ChargePoint shares propelled as high as $44.50 in January of this year.

The sentiment was riding high, but it wasn’t the best time to take a long position. CHPT stock slipped to $20 in March.

Believe it or not, the stock rose and fell back to that same $20 level in April, and then again in May, and once more in August. As of Sept. 23, it was back to $20 and change yet again.

At least we can say there’s strong support at that level.

The sellers can’t expect to fend the buyers off forever. $30 and eventually $40 are reasonable price targets — CHPT has been there before, and the bulls can anticipate a revisit of these price levels.

ChargePoint Can Electrify the Nation

One great thing about investing in ChargePoint is that it allows you to be brand-agnostic.

To put it another way, you can hold the stock and be part of the vehicle electrification movement without betting on any specific automaker.

Yet you’d still have to believe in the future of electric vehicles. It’s a reasonable sector to invest in — at least, Bank of America analyst Martyn Briggs seems to think so.

As you may be aware, President Joe Biden’s administration aims to have 50% of vehicles produced in the U.S. be electric by 2030.

To achieve this ambitious goal, according to Briggs, “you’re going to need to see a lot of up– of supply-chain shifts. Obviously a lot of manufacturing capacity, huge amounts of battery manufacturing in particular to achieve that that we can come to.”

It’s not difficult to connect the dots and see how an electric vehicle charger maker like ChargePoint would benefit from this.

Briggs makes no bones about it: “Net-zero targets are real, and they’re not going away.” And if the government is going to enforce a transition to zero-carbon, zero-emission mobility, Briggs considers vehicle electrification “an obvious low-hanging fruit.”

More Ports, More Revenues for CHPT Stock

Speaking of low-hanging fruit, the CHPT stock bulls can simply point to ChargePoint’s outstanding second-quarter 2021 fiscal data. In a time when the government hopes to advance vehicle electrification, ChargePoint is making strides on the financial front.

For the second fiscal quarter, ChargePoint grew its revenue by 61% year-over-year. Plus, for the full year, the company raised its revenue guidance by 15% to a range of $225 million to $235 million.

Moreover, ChargePoint’s network of charging stations is expanding quickly. The company’s count of activated ports exceeded 118,000 as of July 31. And by the by, this is a global phenomenon — ChargePoint counted more than 5,400 of its charging ports in Europe.

It looks like the Biden administration is going to push hard for vehicle electrification. This should provide a long-term tailwind for ChargePoint. Is this a guarantee that CHPT stock will rally in the short term? Definitely not, as near-term price fluctuations are bound to happen.

But as Briggs said, the net-zero targets are real. They’re not going away, so investors must adjust their strategies accordingly. Given the company’s impressive fiscal data, an informed investor’s strategy could certainly include a position in ChargePoint.

On the date of publication, David Moadel 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.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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