Right now, lithium stocks may be a better way to play the EV megatrend than EV stocks themselves. Why? With the “blue wave” Senate election results, and the incoming Biden administration, big changes to America’s green policies are just around the corner. But, with investors pricing in this factor (and then some) into direct electric vehicles, it may be too late to buy Tesla (NASDAQ:TSLA), Lordstown (NASDAQ:RIDE), and others.
However, there may be plenty of runway left for major lithium plays. As you may know, lithium is a widely-used material in EV batteries. With the U.S., Europe, and China quickly shifting to vehicle electrification, lithium demand is set to soar through the decade.
Yet, while popular stocks in this sector have rallied since last November, there’s still some doubt priced in. Namely, this is due to uncertainties that lithium prices themselves will continue to bounce back after a rough patch in the late 2010s. However, use this to your advantage, and seize the opportunity in this EV-adjacent sector.
So, which lithium stocks belong on the top of your watch list? These four come to mind as established, but fast-growing names in the sector:
- Albemarle Corporation (NYSE:ALB)
- Galaxy Resources (OTCMKTS:GALXF)
- Livent Corp (NYSE:LTHM)
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
Lithium Stocks: Albemarle Corporation (ALB)
First things first, there’s more to Albemarle than just its high exposure to the lithium battery megatrend. Already a dividend aristocrat, the mad rush toward lithium stocks is just icing on the cake for this company.
However, as the world’s largest lithium producer, this has been the stock’s primary driver as of late. With shares up more than 30% in the past month, and up more than 100% in the past six months, some may think its electrification tailwinds are already more than priced in.
Yet, there’s room for more gains from here in the coming year. As investors continue to “buy on the rumor, buy more on the news,” further positive developments will help send the stock to new highs. The incoming Biden administration’s plate may look full right now. But, don’t expect green policy changes to fall on the back burner.
That being said, don’t bet the ranch. And not just due to the overarching concern lithium prices will continue to recover in 2021. While I believe lithium stocks have more room to run than EV stocks, we could still see a correction. However, take any sort of big pullback in ALB stock as an invitation to enter a long-term position.
Galaxy Resources (GALXF)
A penny stock trading on the OTC markets, GALXF is one of the riskier lithium stocks listed here. But, with this high risk comes the high potential of substantial gains from here. Even as this latest “hot stock” has surged 40% in the past month.
How so? Uncertainties about a lithium price recovery remain. But, a full rebound in prices is bound to happen. Sure, despite projections of demand outstripping supply in 2025, so far prices haven’t bounced to a level to make further exploration economically viable.
But, with a boom in commodity prices expected this decade, coupled with the fast move toward EVs, it’s hard to see lithium prices remaining low for long. And, for this miner of lithium concentrate in Australia, Canada and Chile, this could mean a continued rebound toward prices last seen in 2018.
In other words, if lithium prices surge sooner than expected, expect Galaxy Resources stock (currently trading for around $2.15 per share) to $3 per share (and beyond) in the coming years. Tread carefully, given its high volatility. Yet, despite its recent run-up, risk/return remains in your favor at today’s prices.
Livent Corp (LTHM)
As InvestorPlace’s Josh Enomoto wrote Jan. 5, Livent is a pure play lithium company, spun off from chemicals giant FMC (NYSE:FMC) in 2018. One of the better-known lithium stocks, it’s no surprise this too has taken off like a rocket on the heels of last November’s election results.
But, after its more than 240% rally since July, is it too late to dive in? It depends. On one hand, one can argue the ship sailed for LTHM stock months ago. As this Seeking Alpha commentator wrote in late November, shares at the time (trading for around $15 per share) were already pricing in a lithium recovery.
Admitedly, their bearish call on Livent has yet to pan out. Shares are up nearly 50% since then. Yet, that doesn’t mean you shouldn’t be cautious as shares near $24 per share. Trading at a premium valuation (price-to-sales of 11.6x, versus 5.9x for Albemarle), those long this stock may have gotten ahead of themselves.
Then again, with the short side already a crowded trade (32.2% of outstanding float has been sold short), a short squeeze is possible as well. Tread carefully, but keep lithium play LTHM stock on your radar.
Sociedad Quimica y Minera de Chile (SQM)
SQM stock may not be a household name. But, this Chilean miner of lithium is a major rival to names like Albemarle. And, just like its U.S.-based rival, shares have surged on the Biden boost for EV and EV-adjacent plays.
But, while Sociedad Quimica y Minera de Chile is a more on par with established lithium stocks like Albemarle, there are some key differences. Namely, as this Motley Fool commentator pointed out in May, this company is more dependent on the spot lithium market than its U.S.-based counterpart.
If lithium prices continue to rise, SQM stock may have further room to gain than ALB stock. But, if prices pull back, expect greater downside risk. In short, while larger than the other lesser-known lithium plays, don’t expect it to be less volatile.
This lithium stock may offer your portfolio the best of both worlds. More established than early-stage names like Galaxy Resources. But, with greater exposure to rising prices than Albemarle. There’s merit to making Sociedad Quimica y Minera de Chile your main play on the possible long-term rebound in lithium prices.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.