Lithium nowadays is very popular and has a high demand. It can be found in many applications of our daily lives, from business to leisure. Notably, the most important use of lithium is in rechargeable batteries for mobile phones, laptops, digital cameras, and electric vehicles. So, should you buy lithium stocks?
The future of mobility is electric cars, as electrification of vehicles is more popular than other alternative ways of mobility such as hydrogen-fueled cars. In the U.K., the government recently announced that as of 2030 all new cars sold will be electric vehicles.
Some hybrid cars would still be allowed, but the U.K. is one of the largest car markets in Europe. Lithium stocks could benefit a lot from this transition to electrification of mobility globally.
A global lithium demand report by GlobalData estimates that “With the annual production of electric vehicles (EVs) set to grow from 3.4 million in 2020 to 12.7 million in 2024, and battery production growing from 95.3GWh to 410.5GWh over the same period, demand for lithium is expected to rise from a forecasted 47.3kt in 2020 to 117.4kt in 2024 at a 25.5% compound annual growth rate (CAGR)”.
That is significant growth at least for the next five years. But the good news for lithium stocks is that there is also a high demand for electric vehicles.
A report for the electric vehicles market by MarketsandMarkets mentions that the EV market is expected to grow from 3.26 million units in 2019 to 26.9 million in 2030. That equates to a CAGR of 21.1%.
As the prospects for lithium and electric cars demand seem bright, here are three lithium stocks and one lithium ETF to consider buying as they could benefit significantly from this global battery demand expansion:
- Albemarle (NYSE:ALB)
- FMC (NYSE:FMC)
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Global X Lithium & Battery Tech ETF (NYSEARCA:LIT)
Lithium Stocks to Buy: Albemarle (ALB)
Albemarle develops and manufactures chemicals and is among the largest producers of lithium globally. It has production facilities in Europe, North and South America, Asia and Australia offering a decentralized lithium business to cover demand for lithium in many markets.
The stock has a market capitalization of $14.5 billion and a trailing 12-month price-earnings ratio of 37.9. That’s not considered cheap, but ALB has a forward dividend and yield of $1.54 and 1.1%, respectively.
The year-to-date performance is 86% and Zacks estimates an expected EPS growth of 10.6% for the next three to five years. Not bad for a stock that can have growth and be a leader in the lithium business globally. With a beta of 1.31 for the past period of five years every month, it is a stock with a lot of volatility as commodities tend to be in general volatile in their market prices.
Another large company with a stock market capitalization of $15.43 billion. It is s chemical company that manufactures products in the agriculture, and industrial markets worldwide. It has a lithium dedicated business segment, and the stock has a year-to-date performance of 19%.
This is a much less volatile stock than ALB, as FMC stock has a beta of 1.02 for the past period of five years monthly, in tandem with the general stock market.
A P/E ratio of 31.1 for the trailing 12 months does not look cheap, and it has a forward dividend and yield of $1.76 and 1.48%, respectively. Plenty of future growth is expected for this stock for the next five years, too. Zacks estimates an EPS growth of 10.9% for the next three to five years.
Sociedad Quimica y Minera de Chile (SQM)
As the name suggests, Sociedad Quimica y Minera de Chile is a Chile-based company with a global presence in the lithium business. As the other two previous lithium stocks. The company both produces and distributes industrial chemicals, specialty fertilizers, and crops, as well as lithium products.
This is another large company with a stock market capitalization of $12.3 billion. Compared to ALB and FMC, SQM stock is the priciest one, with a P/E ratio of 74.8 for the trailing 12 months. The dividend yield is in the same range as the other two previous lithium stocks. SQM stock has a forward dividend and yield of 71 cents and 1.48% respectively.
The stock has performed better than FMC stock but worse than ALB stock in 2020, with a year-to-date performance of 75.3%. But according to Zacks, SQM stock is expected to have the highest growth of EPS, compared to the previous two stocks. The expected three-to-five-year EPS growth is 16.66%.
Global X Lithium & Battery Tech ETF (LIT)
If you want to invest in lithium but do not want to choose specific stocks, but a rather passive investment, then the Global X Lithium & Battery Tech ETF is a great choice. This ETF invests in the full lithium cycle, covering business aspects such as mining and refining the metal, and also battery production as well.
LIT tracks the Solactive Global Lithium Index. It carries total expense ratio is 0.75%, or $75 annually on a $10,000 investment. The ETF has net assets of $1.357 billion as of Nov. 30.
Some of the largest holdings include Panasonic (OTC:PCRFY), Tesla (NASDAQ:TSLA), and Albemarle. The ETF has performed well in 2020 with a year-to-date performance of 57.17%. Half of the net assets are based in China, with almost 21% of net assets based in the United States. South Korea follows with an 11.2% percentage of net assets based. The country with the least exposure of net assets in Canada with only a 0.4% exposure.
On the date of publication, Stavros Georgiadis, CFA did not have (either directly or indirectly) any positions in the securities mentioned in this article.