Markets

These Lithium Stocks Could Soar Despite Falling Prices

Lithium batteries
Credit: Shutterstock photo

It’s no secret that lithium stocks are soaring, with industry darlings Sigma Lithium (SGML) and Liontown Resources (LINRF) leaping over 100% and 53% respectively in the past year. This is happening as the electric vehicle (EV) revolution has bolstered demand for the new ‘white gold.’

As the industry booms, mergers and acquisitions (M&A) activity is flying high, lifting prices for a slew of start-ups that analysts expect will continue to gain even as lithium prices start cooling as new supply comes on stream. 

Sigma is a favorite of industry consultant Oscar Vargas who said the producer has built an innovative and environmentally friendly manufacturing facility set to begin production in April. The Canadian firm has outpaced rivals in the so-called Lithium Triangle region where South American countries such as Bolivia, Chile and Argentina have been slower to build output of the key metal used to make EV batteries, cell phones and laptops. 

Sigma Lithium 

Sigma’s rapid growth has fueled interest from bidders looking to benefit from its manufacturing efficiencies, which have allowed it to build a ‘hard rock’ spodumene extraction facility in Grota de Cirilo, Brazil five years faster than rivals, according to Vargas.  

Hard rock extraction involves crushing and milling of Pegmatite rocks usually containing rare minerals. Lithium found within the spodumene method (which can involve roasting rock at 2012°F) can be processed into lithium hydroxide, the preferred component to make EV batteries.

While markets have speculated Tesla (TSLA) could mount a bid for Sigma, Vargas said that’s unlikely, leaving the door open for other top suitors such as China’s Ganfeng Lithium.

“Anything could happen with Elon Musk, but I don’t think they will buy Sigma,” noted Vargas. “Tesla needs more experienced partners and is already in talks with CATL for a lithium-ion battery factory in the U.S.”  

Plus, Sigma is poised to begin selling lithium to Warren Buffett-backed Chinese EV brand BYD, which is rushing to build factories in Brazil. The Tesla CEO is unlikely to want to share lithium supplies with a competitor, Vargas added. 

The expert, who advises Bolivia’s government on its own lithium ambitions (the nation is home to the world’s largest deposits), predicted Sigma’s stock could leap 10% to 20% this year.   

Liontown, Albemarle

Meanwhile, Liontown could boost investors' fortunes amid speculation that U.S. mining giant Albemarle (ALB) could sweeten its $3.4 billion bid for the Australian start-up. 

“The offer is ridiculously low,” quipped one analyst, adding that China’s Tianqi paid $3.4 billion for just 24% of Chilean producer SQM (SQM) in 2018 while Sigma has a $3.8 billion market capitalization. “There is a 70% chance Albemarle will increase the offer.”

Albemarle is also under pressure to strike a deal amid speculation Chile’s government will nationalize its lithium industry, hurting its large operations in the mining-rich country, according to the analyst.  

Despite its challenges, some investors think Albemarle can do well. 

For starters, the firm is set to benefit from Washington’s EV subsidies handing as much as $7,500 in tax credits to drivers who purchase a vehicle made from American-sourced metals or batteries, according to investment manager Gerber Kawasaki. 

Albemarle, for which analysts see a 58% upside from its current price of just under $200 a share, is also rapidly expanding its U.S. operations. It recently announced it will invest over $1.3 billion to build a new lithium hydroxide processing facility in South Carolina. The site will churn out 50,000 metric tons of the silver-white metal, enough to support the production of 2.4 million electric cars per year.

Lithium Americas, SQM

Albemarle runs the U.S.’s sole lithium site. This, coupled with a low valuation and an attractive dividend, make it an attractive investment choice, according to Gerber Kawasaki’s Co-Founder and President Ross Gerber.

He also likes rival Lithium Americas (LAC) after General Motors (GM) announced a $650 million investment to help it accelerate its Tacker Pass project in Humboldt County, Nevada to supply the struggling car maker with batteries for up to 1 million EVs annually. 

“GM is pretty inexperienced [in EV raw materials] so teaming with Lithium Americas is a smart move,” Gerber noted. Securing cheap batteries is also becoming increasingly crucial as EV suppliers cut prices. “Owning a piece of the vertical supply chain is a huge advantage,” added Gerber. 

The Los Angeles-based investor is also watching SQM, Chile’s leading lithium producer which has a government supply contract that makes it very profitable, Gerber noted. Shares are down 10% this year, making a dip buy an attractive bet. The company also has an impressive 7.44% dividend yield. Last year, SQM delivered a 770% revenue jump to $8.15 billion from its lithium business. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Ivan Castano

Ivan Castano is a seasoned financial editor, corporate content specialist and journalist with over two decades’ experience writing for leading publications including Bloomberg, Forbes, Barron’s, MarketWatch, Euromoney and FT groups, among many other leading titles. He enjoys writing about the emerging markets, corporate finance, technology and investing.

Read Ivan's Bio