Pop Quiz: This versatile metal, which is light enough tofloat on
water and soft enough to be cut with a knife, has commercial
applications ranging from pharmaceuticals to rocket fuel.
If you said lithium, go to the head of the class -- and bonus
points if you phrased your response in the form of a question, a la
Lithium is a unique element that has been endowed with several
curious properties. But you don't need to be a chemist to
appreciate the fact that this alkali metal has half the density of
water, or that it has the highest specific heat of any solid.
Industrial manufacturers are willing to pay hundreds of millions
each year for these eccentricities.
You don't hear about lithium as you do other raw materials, mostly
because it doesn't trade on any of the world's commodities
exchanges. But that didn't stop prices from tripling between 2005
and 2009 or producers from spending big bucks on expansion projects
to extract even more from the ground and the seas.
The reason for the investment? Lithium is a versatile product with
as many uses as duct tape. You can find it in fireworks, aircraft,
glass cookware and even medicine cabinets (it's an effective
treatment for bipolar disorder).
These applications drum up steady demand each year, but the real
magic is that, pound for pound, this metal can store more electric
energy than just about any other material. That has made lithium
the battery maker's best friend.
Lithium batteries have three main growth drivers -- electric
vehicles, portable electronics and wind/solar power smart grid
storage. That makes a powerful 1-2-3 punch.
The catch: Unlike gold, silver and other metals, it's virtually
impossible to invest directly in lithium. There are no lithium
trading pits, no
contracts and no way to take physical possession -- the metal is
highly reactive and usually stored under a protective coating of
But a newexchange-traded fund (ETF)
Global X Lithium (
is the next best thing, and investors have been piling in. When I
covered the fund's launch for my subscribers in August, it held
only $1.6 million in assets. Less than five months later, it has
attracted 100 times that amount.
Roughly, half the portfolio is invested in companies engaged in
lithium mining and refinery. The big three,
Sociedad Quimica y Minera (
Rockwood Holdings (NYSE:
, are the fund's three largest positions.
These companies have diverse business lines. Last quarter, Chile's
SQM sold $34 million worth of lithium products -- but fertilizer,
iodine, potassium and industrial chemicals brought in $355 million.
In other words, lithium accounts for less than 10% of the firm's
So these aren't pure plays. But collectively, this trio accounts
for about three-fourths of the world's lithium production. And
their reserves are located in Chile's high Atacama Desert, where
high lithium concentrations mean low extraction costs -- and
The rest of the fund's assets are invested in a well-rounded mix of
battery makers -- about 15 of them -- that include a hefty stake in
Ener1 (Nasdaq: HEV)
, whose Indiana manufacturing facility will soon be rolling out
advanced automotive batteries for customers like
Ford Motor Co. (
General Motors (
and the U.S. Army. You'll also get
A123 Systems (Nasdaq: AONE)
, which has recently landed clients such as BMW, Daimler and
Action to Take -->
In many respects, this industry is still in its infancy. So it's
difficult to say which technologies will emerge victorious and
which will become historical footnotes. That means there will be
some spectacular winners in this field, but also some potential
That uncertainty is the perfect environment for a well-rounded fund
like LIT -- rather than place all your bets on one horse, you can
spread it among 20 of the strongest contenders. My money says that
several of these will go on to be multi-baggers within the next
Shares of LIT have been on a tear; they've steadily gained about
40% since I first profiled the fund in August. The long-term growth
is there, but conservative investors might want to wait for a
-- Nathan Slaughter
P.S. -- Don't forget to get the sneak peek at my Top Ten Stocks
for 2011 if you haven't already done so. There is still time to put
your money to work in these picks, but some of them are already
running away. My top performer -- Stock #1 in this memo -- is
already up 60.7% since I published my report less than two months
ago. Follow this link for all the details.
Disclosure: Neither Nathan Slaughter nor StreetAuthority, LLC
hold positions in any securities mentioned in this article.
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