It seems certain that the current decade belongs to the electric vehicle industry, which presents a real opportunity for lithium stocks.
By 2030, EVs will make up a third of new cars sold globally. The lithium industry is likely to be one of the biggest beneficiaries of this secular growth story. It’s not surprising that lithium stocks have surged as EV adoption increases globally. My focus is specifically on the EV industry with estimates suggesting that EVs will account for 79% of lithium demand by FY2030.
The UK and European EV industries will require 1.4m tons of refined battery-grade lithium hydroxide and lithium carbonate per year by 2030 according to estimates. Over the next decade, supply needs to increase by 400% to cater to this demand, and that’s without considering China, which will remain the biggest EV market for some time.
On the supply side, it’s expected that the supply of lithium will triple by 2025. However, it might still not be enough to cater to the growing demand. Therefore, lithium prices are likely to firm up and trend higher in the coming years.
Given this outlook, it makes sense to consider lithium stocks for the long-term portfolio. Let’s talk about four lithium stocks that seem to be best positioned to benefit from positive industry tailwinds.
- Piedmont Lithium (NASDAQ:PLL)
- Lithium Americas (NYSE:LAC)
- Orocobre Limited (OTCMKTS:OROCF)
- Livent Corporation (NYSE:LTHM)
4 of the Best Lithium Stocks for the Future: Piedmont Lithium (PLL)
PLL stock has surged by over 1,200% in the last year. The stock has remained resilient at higher levels even after a round of equity dilution. The stock price action indicates that further upside is due after some consolidation.
It’s worth noting that the stock trades at a market capitalization of $1.0 billion. The company’s key project has an after-tax net present value of $1.1 billion. This is one indicator that the stock is still attractively valued.
In terms of revenue upside, the company has a five-year binding agreement with Tesla (NASDAQ:TSLA). The first shipment to the electric vehicle manufacturer is expected in 2022-23. The fixed price agreement ensures clear revenue and cash flow visibility.
As of November 2020, the company reported mineral resources of 27.9 megatons. Earlier this month, the company reported an increase in mineral resources to 39.2MT. This is likely to translate into increased annual lithium production.
In another important development, the company entered into an agreement to acquire 19.9% interest in Sayona Mining. The latter owns a prospective Authier lithium project.
As the total annual production capacity expands, Piedmont Lithium will be positioned for a supply agreement with other EV companies. For PLL stock, this might just be the beginning of the long-term uptrend.
Lithium Americas (LAC)
Lithium Americas is also among the top lithium stocks to consider. The stock has corrected from highs of $28.7 and currently trades at a little more than $14. The correction is a good opportunity to accumulate.
B. Riley analyst Lucas Pipes has a target of $25 for the stock. This would imply an upside of 62.3% from current levels. The key upside trigger is the company’s Thacker Pass project in Nevada. This project has the largest known lithium resource in the United States.
In addition, the company also has a project in Argentina with 69% of the $565 million capital expenditure completed. In Argentina, the company already has agreements for 90% of the total production of 40,000 tons per annum. The project life is 40 years with the company estimating an after-tax NPV of $1.5 billion.
The Thacker Pass lithium project was permitted for construction and operation in January 2021. Towards the end of the year, all major permits are expected for the project. With resources of six million tons of lithium carbonate equivalent (LCE), the project is likely to be a game-changer for the company.
From a financial perspective, the company has $500 million in cash. The financial flexibility is likely to ensure that project timelines are met.
Best Lithium Stocks: Orocobre Limited (OROCF)
OROCF stock is also among the attractive lithium stocks to consider. In the last six months, the stock has surged by 162%. It seems that the markets did anticipate the recent merger announcement made by the company.
On April 19, Orocobre and Galaxy Resources (OTCMKTS:GALXY) resources agreed on a merger of equals. The merged entity will be the fifth-largest global lithium chemicals company with 40ktpa of LCE production capacity.
The merged entity is likely to have a cash position of $487 million with $173 million in debt. With low debt and a healthy cash position, the merged entity will have ample financial headroom to pursue project completion.
Another positive aspect is that the merger will ensure global asset presence with the company being vertically integrated. Additionally, the merged company will have a balanced portfolio of operating and development assets.
Overall, the company’s diversified asset base has total resources of 71.2MT of LCE. Additionally, the company will have a 10kpta hydroxide production facility.
Therefore, the combined entity seems to be attractive from an asset perspective. Once development projects are completed over the next two years, strong revenue growth and cash flow upside is likely. Even with OROCF stock trending higher in the recent past, fresh exposure can be considered.
Livent Corporation (LTHM)
LTHM stock, which has surged by more than 200% in the last year, still looks attractive for fresh exposure. The key products of the company include lithium hydroxide and butyllithium. The company is also well-diversified globally with 64% of the revenue coming from Asia.
In a key development, the company announced a multi-year supply agreement with BMW Group (OTCMKTS:BMWYY). As a part of the agreement, the company will deliver lithium hydroxide and carbonate. While Livent has already started product delivery, commercial volume is expected in FY2022.
For last year, Livent reported revenue of $288 million. The company has guided for revenue of $350 million for the current year. With volume delivery for BMW expected next year, revenue growth is likely to accelerate. This makes LTHM stock attractive.
It’s also worth noting that for FY2020, Livent reported positive operating cash flow of $6 million. Over the next few years, OCF is likely to increase significantly. Once free cash flow accelerates, stock re-rating is likely.
On the date of publication, Faisal Humayun did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.