Editor’s note: This story was previously published in January 2019 and has since been updated and republished.
No matter how innovative or utilitarian a new platform may be, all modern technologies require a catalyst to operate. For most devices, this requirement translates into a lithium-based power source. Nowadays, almost everything we use runs on the silver-white metal. Logically, the idea of buying lithium stocks is a frequently made suggestion.
However, the markets sometimes deploy their own logic, which seemingly runs counter to the fundamentals. For instance, industry demand for lithium remains robust, and is likely to increase as electronics manufacturers pump out smart devices. Yet the benchmark exchange-traded fund Global X Lithium ETF (NYSEARCA:LIT) is down approximately 19% over the past year.
Why the disconnect between lithium stocks and underlying industry demand? Mostly, experts in the field forecast an overabundance of supply due to mining companies ramping-up production. Additionally, last year Morgan Stanley analysts predicted a massive drop in the commodity’s price over the next few years that could outpace even tremendous demand from electric-vehicle companies.
Of course, the other major concern is a more recent development: The escalating U.S.-China trade war. I say escalating because while the two sides are talking, we’re seeing no substantive evidence of a potential deal. For instance, China just stated that they will fight the trade war “to the end.” That’s not productive language nor is it conducive for lithium stocks.
Let’s not forget that China has a massive stockpile of lithium. Furthermore, they regard the commodity as “white petroleum,” and are actively seeking to dominate its supply chain. Although opinions vary on this dynamic, in my view, that’s net bullish for lithium stocks due to the tech industry’s ever-rising demand.
With that in mind, here are my ten picks for lithium stocks to take advantage of the market’s irrationality.
Several of the lithium stocks that analysts commonly discuss are admittedly speculative affairs. As a result, the downturn in the lithium market has severely and disproportionately impacted the industry’s direct competitors. But for a solid, renowned organization like Albemarle (NYSE:ALB), the selloff presents a viable contrarian opportunity.
I’m not going to beat around the bush: ALB stock has taken a massive beating, even compared to the lithium industry’s bloodbath. Over the past year, shares have lost nearly 26% in the markets.
That said, I’m encouraged with some positives in the company’s financials. After absorbing a disappointing dip in revenues in 2016, Albemarle bounced back the following year. The growth continued in 2018 with revenues growing from $3.07 billion to $3.37 billion. ALB reported Q1 earnings-per-share that were in-line with analysts’ consensus estimate and revenue that beat the average outlook.
Despite geopolitical saber-rattling, the outlook for lithium remains strong. Experts forecast nearly a 9% lift in global demand through 2019. Thus, the present weakness in ALB stock is a great entry point.
Sociedad Quimica y Minera (SQM)
Due to its sheer dominance in the sector, no discussion about lithium stocks is complete without mentioning Sociedad Quimica y Minera (NYSE:SQM). SQM is based in Chile, which according to CNBC enjoys the world’s largest lithium reserves. In fact, CNBC was quite emphatic about this point, noting that no other nation comes close to Chile’s 7.5 million metric tons of the hotly demanded metal.
Unfortunately, as with many other lithium stocks, SQM suffers from a divergence between fundamental bullishness and technical trading. Over the past year, shares are down over 34%.
But what’s truly compelling about SQM stock is the general stability of the underlying company’s host nation. Historically, relations between the U.S. and Chile are favorable. While that might have changed over the past two-and-a-half years, the U.S. still represents a critical trading partner to Chile.
When you’re dealing with lithium stocks, you’re already in a volatile market. With SQM, you can at least take away some political variables.
For some time, Tesla (NASDAQ:TSLA) was one of my favorite tech firms to discuss. Much of my enthusiasm had to do with CEO Elon Musk, a man who consistently thinks out of the box.
But for owners of TSLA stock, I’m sure many of them wish he would stay in the box occasionally. For all the positives that Tesla delivered to the technological and scientific communities, the CEO made multiple unforced errors.
You can take a look at the chart for TSLA stock and see what those errors — along with a general lack of focus — have done. It’s not pretty.
In the spirit of full transparency, I’ve lost patience with Musk. I also have some questions about the effectiveness of Tesla vehicles.
That said, if you want to speculate on lithium and battery stocks, you may want to consider TSLA. Recently, Musk suggested that Tesla may get into the lithium-mining business to support the company’s larger-scale growth plans.
Out of the crazy things Musk has said recently, this is one that finally makes sense. Although I’m not entirely convinced, commodity bulls may find that this is the perfect turnaround narrative.
Speaking strictly from a product fanbase perspective, few companies generate as much buzz as the aforementioned Tesla. I’ve repeatedly called Elon Musk eccentric, but that same eccentricity inspires him to create aesthetically and technologically stunning cars. However, many folks might not appreciate just how important of a role Panasonic (OTCMKTS:PCRFY) plays in Tesla’s success.
When most people hear the name Panasonic, they immediately think about consumer-electronic devices. While that’s very much part of their business and legacy, the company is also shifting heavily toward lithium-based technologies. Panasonic and Tesla developed a strong, if somewhat under-appreciated partnership. Notably, Panasonic manufactures Tesla vehicles’ lithium-ion batteries at Tesla’s vaunted Gigafactory.
More importantly, all signs point to the two companies continuing their relationship into other business ventures. Call it a corporate “bromance” that looks to be a viable opportunity for long-term gains. This idea gets more credibility considering that PCRFY has suffered the same fate as other lithium and battery stocks. PCRFY is down roughly 39% since the year-ago period.
But if Tesla manages to get out of its current funk, I can see PCRFY tagging along for the ride. Additionally, Panasonic can use its acumen with other key tech-based partnerships.
In the entertainment world, audiences look forward to spin-offs to provide further insights into favorite plotlines and characters. But within the investing segment, spin-offs are touch-and-go affairs.
Just take a look at Livent (NYSE:LTHM). Formerly the lithium arm of FMC (NYSE:FMC), LTHM stock began life as its own publicly traded entity in October 2018. To put it mildly, results are not favorable, with shares down a whopping 59% since the initial public offering.
But much of that pain didn’t start until May, when Livent disappointed for its first-quarter earnings report. Management cut its full-year revenue and profit forecasts due to weak demand, particularly for its higher-end lithium products.
Granted, this is an ominous-sounding report. However, please note that Livent experienced three weeks of lost production due to heavy rains. More importantly, lithium demand broadly is not going away. From smaller electronics to large batteries, everyone is diving into this sector. Therefore, LTHM stock attracts as a speculative contrarian opportunity.
Power Metals (PWRMF)
Contrary to what some may believe, not all lithium-mining processes are the same. Currently, the two most popular methods are lithium brines and lithium-cesium tantalum pegmatites or more commonly referred to as “hard rock.”
Lithium brines represent the most popular method to which most lithium stocks are levered. However, the drawback is that the process is vulnerable to weather-related issues. Given that industry demand for the metal is constantly rising, unfavorable weather could severely impact production. To get around this issue, lithium miners are exploring hard rock, which is essentially weather-independent.
One mining company that’s putting the hard-rock concept to the test is Power Metals (OTCMKTS:PWRMF). With several projects spread around resource-rich Canada, Power Metals aims to be a significant provider of lithium. Plus, the company’s geographically stable region is a big positive for PWRMF stock.
That’s the good news. The not-so-great news is that PWRMF is a genuine, over-the-counter penny stock. Shares are down 82% over the past year, which tells you all you need to know. Still, if you’re looking for a potentially explosive contrarian play among lithium and battery stocks, Power Metals is it. Just bet carefully and responsibly.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is a direct but completely speculative gamble on the growth potential of lithium stocks. While LAC earned itself a healthy dose of street cred with its joint venture with Sociedad Quimica y Minera, the company has no production assets.
That’s not necessarily a deal-breaker as it has legitimate plans to attain those assets. Still, you’re taking a risk that management will follow through.
And while the markets have not been kind to lithium stocks, LAC has taken the brunt of the damage. Year-over-year, shares have tanked nearly 33%. Clearly, this is not an investment for the faint of heart!
Having said that, I believe that analysts’ consensus bearishness toward the lithium industry is overplayed. Yes, commodity prices fluctuate year-to-year for various reasons. However, demand for lithium is broadly trending higher.
It’s not just electric vehicles and other physically imposing technologies that require lithium. Consider that the burgeoning e-cigarette or vaporizer market requires a healthy lithium supply chain to keep running.
So long as the drive for innovation exists, so too will lithium demand. This adds some measure of confidence to the otherwise speculative LAC stock.
Galaxy Resources (GALXF)
Most direct plays in the lithium sector invariably involve mining stocks. Even in the best circumstances, commodity miners aren’t known for their stability and reliability. That said, one of the better ways to help mitigate this risk is to seek companies with diversified portfolios. Galaxy Resources (OTCMKTS:GALXF) is one such example.
Galaxy’s primary claim to fame is its Sal de Vida project, located in northwest Argentina. Situated in what industry experts term the “lithium triangle”, the area produces more than 60% of global annual lithium supply. Beyond that, GALXF has projects in its native Australia, as well as Canada. Both regions are geopolitically stable, eliminating a major headache for investors.
Regarding risk factors, you should note that GALXF is now a legitimate penny stock with a share price under $1. During the past year, shares have plummeted over 59%.
Some of that is due to the volatility of a relatively new market. Other reasons include Tesla’s recent fall from grace, and rumors about slowing demand for their cars.
Similar to Panasonic, Toshiba (OTCMKTS:TOSBF) is primarily known for its electronic devices, particularly its laptop computers. While their primary businesses are unlikely to change, Toshiba is shifting resources heavily toward lithium technologies. It has already achieved substantial success with high-power, quick-recharging batteries, with more innovations in the pipeline.
And while TOSBF is a legitimate play on lithium-based battery stocks, its multi-varied product portfolio affords it volatility protection. Shares are up roughly 8% year-to-date, despite taking a severe tumble beginning in May.
The other advantage for Toshiba is that the company has suffered from prior missteps. Having taken the ugliness out of the way, the company is on a recovery path.
As such, TOSBF offers meaningful exposure to lithium while effectively acting as a hedge.
Taking a cue from other lithium stocks, Pilbara (OTCMKTS:PILBF) has absorbed a beating. On a YTD basis, PILBF stock is down nearly 24%. Over the trailing 52-week period, the Australian lithium-tantalum miner has dropped a staggering 39%.
Of course, this specific mining segment is in a tough spot. While demand is broadly rising, economic tensions between the U.S. and China cloud matters. That conflict has hurt automotive forecasts for EVs, which has deflated sentiment for lithium stocks.
Still, despite the ugliness around PILBF stock, I like its potential as a high-risk, high-reward opportunity. Pilbara gets its name from Australia’s resource-rich Pilbara region. And the company’s Pilgangoora Project sits atop one of the largest lithium-ore deposits in the world.
A major plus for PILBF is that its key mining project is near established infrastructure. That means it can get its products out to port and feed global demand when it returns.
It’s a long shot, but PILBF stock features an intriguing narrative, especially at these deflated prices.
As of this writing, Josh Enomoto was long TOSBF.