The global shift toward sustainable energy has caused investors to rethink their portfolios. While we’re unlikely to completely eliminate oil and gas anytime soon, they don’t exactly offer a high-growth opportunity for shareholders. At this point, alternative energy is only in its early stages and could offer investors high-growth investments. Lithium stocks and battery stocks fall firmly into that category. The electric car revolution means this segment is poised to balloon in the years ahead.
It’s impossible to know for certain whether electric vehicle (EV) trends will persist, but current projections see the market growing more than eight times its current size over the next decade. That opens the door for big moves, not only among the carmakers themselves but also for those that supply the vehicles with components.
With that in mind, here’s a look at seven battery and lithium stocks poised to benefit from the EV revolution.
- Romeo Power (NYSE:RMO)
- Albemarle (NYSE:ALB)
- Anglo American (OTCMKTS:NGLOY)
- NextEra Energy (NYSE:NEE)
- Livent (NYSE:LTHM)
- Galaxy Resources (OTCMKTS: GALXF)
- Global X Lithium & Battery Tech ETF (NYSEARCA:LIT)
Battery and Lithium Stocks: Romero Power (RMO)
Romero is a relatively new addition to Wall Street, brought to investors courtesy of a special purpose acquisition company (SPAC). That’s not necessarily a bad thing, but it should set warning bells off for cautious investors. While SPACs offer retail investors the ability to get in on frothy initial public offering (IPO) pops, they also allow investors to trade in risky new companies that are in their infancy. Romero most certainly fits in that category.
The group makes batteries for electric trucks, and as a relatively new company, it has yet to turn a profit. That’s not unusual for an early-stage firm like Romero, but it adds a layer of uncertainty that investors need to be prepared for.
At present, all we have to go on for RMO stock is the company’s prospectus and management’s projections. The group expects revenue to climb from $5 million in 2020 to $1.4 billion by 2025. But without more information, investors simply have to trust management’s word.
We can assume that’s a lofty goal, particularly because a lot can happen in five years, and the near-term growth of the EV market depends heavily on government support. However, for those willing to stomach the ups and downs, Romero has potential. InvestorPlace’s Mark R. Hake believes it can double over the next two to three years — so it’s not a bad place to start your search for battery stocks.
If you’re looking for lithium stocks, Ablemarle is sure to come up at the top of your search. The company’s bread and butter is lithium, particularly that used in batteries for EVs, and it is one of the largest producers in the world. Ablemarle’s reliance on lithium means the growing popularity of electric vehicles itself is a catalyst for the stock.
Some believe that lithium supplies won’t meet demand over the course of the next decade as production of EVs ramps up. So far this year, the firm has been beaten back by disappointing demand — the pandemic kept the market for EVs from growing as expected, which in turn hit lithium stocks that had been banking on a boom.
The pandemic was probably a temporary hurdle in the ultimate transition to electric vehicles, though. As we return to normalcy, companies like Ablemarle will see the wind return to their sails. The company’s Q4 results suggested a rebound was already materializing. Notably, the company is highly valued with a price-to-earnings (P/E) ratio of 42.5, which opens the door for disappointment in the short term because it suggests investors are expecting big things. Any missteps in the meantime could cause volatility.
But ultimately, ALB stock looks like a strong choice among lithium stocks.
Anglo American (NGLOY)
Anglo American isn’t a pure-play lithium stock, but the company’s exposure to batteries and electric vehicles can’t be ignored. The group mines a variety of commodities, but platinum is of particular significance because of its use in the production of electric vehicles.
Anglo’s platinum division delivered a 28% increase in profits despite the pandemic slowing production, underscoring just how valuable the precious metal has become. The group still depends heavily on iron ore, but management has said it plans to eventually spin off some of its thermal coal assets, which would see it transform into a far greener organization. Not only that, but it would weight the group’s portfolio more heavily toward platinum, further exposing it to a potential boom in the EV market.
Notably, Anglo isn’t a pure-play choice among battery stocks, but its exposure is enough to offer investors the ability to dip a toe in the EV market components market. The fact that it’s a miner with a diversified portfolio means shareholders may not see the same intense highs as some of these other companies. But on the flip side, they likely won’t experience massive lows if there’s a slipup in the space either.
NextEra Energy (NEE)
From a sustainability perspective, there’s a lot to like about NextEra stock. The company is a leader in the battery-storage industry, and its $149 billion market capitalization makes it a powerful player on Wall Street.
NextEra Energy is also the largest wind and solar energy producer in the world — making it a linchpin in the global effort to shift toward cleaner energy sources. That comes with a lot of clout as the world shifts toward a more sustainable future — particularly with a Democrat leader at the helm. President Joe Biden’s administration will be a rising tide that lifts all boats within the space, NextEra included. The company is a pure play on renewables, and its battery-storage arm is the icing on the cake.
Unlike many of the other stocks on this list, NEE stock offers a respectable 2% dividend yield that’s likely to continue rising as long as the firm can maintain its healthy cash flow. That means investors who are willing to wait for the EV revolution to take hold will see their patience rewarded.
Livent is, as its name suggests, a lithium pure-play. The company was formerly an arm of FMC Corporation (NYSE:FMC), and since the spinoff the stock has been skyrocketing. With Biden in office and optimism surrounding cleaner energy growing quickly, Livent stock has risen more than 250% over the past year. While such a monumental rise certainly raises a red flag valuation-wise, the stock could increase further on industry growth.
Longer term, Livent could have further to climb if demand for lithium continues to swell. Analysts at Cowen issued a fairly conservative hold rating on the stock with a price target of $19. That’s just a 2% increase from where the stock is currently trading at the time of publication.
Ultimately, we can expect Livent to trade alongside lithium demand. If it continues to rise and EV adoption grows, so will LTHM’s profits. That means investors are taking on some risk should the industry stumble, particularly because the stock is already flying high. However, if demand continues to tick over, Livent will be a huge beneficiary.
Galaxy Resources (GALXF)
Of all the stocks on this list, Galaxy is probably the riskiest. As a far smaller name trading on over-the-counter markets, it makes for a volatile choice. However, the benefit of owning a smaller name like Galaxy means the upward movements are also larger. That’s why many investors are willing to take the risk on penny stocks.
Galaxy is a lithium miner operating in Australia, Canada and Chile. The group has been hit by a decline in demand as well as news that Tesla (NASDAQ:TSLA) is developing its own lithium mining resources.
Ultimately, lithium prices will come down to supply and demand. Analysts seem to agree that, at least in the next decade, supply will fall short of demand. Then, that should ultimately boost the sector as a whole. With that in mind, smaller, more agile players like Galaxy may see much larger movements than some of the big-name rivals. If you can stomach the risk, it could be worth the reward in this case.
Global X Lithium & Battery Tech ETF (LIT)
While not technically one or the other, the Global X Lithium & Battery Tech ETF encompasses both lithium stocks and battery stocks, making it a great pick for those who want to invest in the trend without taking on any huge risks. The ETF covers every part of the industry from mining to battery production.
The fund is down 2.5% so far in 2021 after a bumper 2020, offering investors a good entry point.
The benefit of investing in an ETF over a single stock is diversity. While one company may win or lose, a whole basket of stocks will offer an average of the entire sector. It represents a bet on the sector as a whole rather than picking a winning horse in the battery and lithium race. That means the highs aren’t quite as impressive, but it also takes away some of the downside risk as well, making it a good pick for investors who want to play the EV trend but can’t stomach the ups and downs that go along with it.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.