Driven by demand from electric vehicles, global lithium price has been trending higher, which is good news for lithium stocks.
SQM, a producer of the rechargeable battery ingredient, believes that demand is accelerating faster than previously anticipated. SQM further believes that total lithium demand could surpass 1 million tons in 2025. With electric vehicle adoption seemingly at an inflection point, lithium stocks are likely to have a multi-year tailwind.
According to the International Energy Agency, three million electric cars were registered in 2020. The IEA further believes that there is likely to be 145 million electric vehicles on road by 2030. This is an indication of the impending demand for lithium. In the medium-term, S&P estimates that global lithium demand will more than double by 2024.
Given these estimates, lithium stocks are attractive for the portfolio. Let’s talk about four lithium stocks that are positioned to trend higher, backed by revenue and cash flow growth.
- Lithium Americas (NYSE:LAC)
- Piedmont Lithium (NASDAQ:PLL)
- Albemarle Corporation (NYSE:ALB)
- Standard Lithium (NYSE:SLI)
Best Lithium Stocks to Buy: Lithium Americas (LAC)
LAC stock seems to be in a renewed uptrend. The stock has trended nearly 30% higher over the last month. Considering the industry outlook and the company’s assets, the stock is likely to remain in an uptrend.
The company’s lithium brine project in Argentina, Caucharí-Olaroz, has a capacity of 40,000 tonnes per annum (tpa). The project is on track for mid-2022 production. It’s also worth noting that Lithium Americas expects annual production of 40,000tpa to sustain for the next 40 years.
Over the life of the project, the average annual EBITDA is likely at $308 million.
Furthermore, the company’s Thacker Pass project has a mine life of 46 years. Production from the assert is expected at 60,000tpa. At full production capacity, the project is expected to deliver an annual EBITDA of $520 million.
Clearly, Lithium Americas has quality assets. Once these assets are in production, cash flows can be robust. Lithium price has also been gradually trending higher and this can further boost the EBITDA outlook.
It’s also worth noting that the company has a strong balance sheet with $500 million in cash. Both the key projects are fully financed through the cash buffer and credit facilities. Once production commences in mid-2022, LAC stock might be positioned for a big rally.
Piedmont Lithium (PLL)
PLL stock is another quality name among lithium stocks. The company has been building a diversified asset base, which is likely to be a long-term cash flow machine.
PLL stock was in consolidation mode around the $50 level, but has begun a break-out on the upside and appears headed toward $60. It trades today at around $56 and touched $80 earlier this year.
Currently, the company has a 100% owned project in North Carolina. The project is likely to deliver $400 million in annual EBITDA. The project’s present net value is estimated at $1.9 billion.
Further, the company has 39.6% economic interest in the Quebec project. While the economics of the project are still to be determined, the asset has resources of 68 million tonnes per annum (Mtpa).
Piedmont Lithium also has a 50% project interest in an asset in Ghana. With mineral resources of 14.5Mtpa, the project has a net present value of $345 million.
It’s worth noting that PLL stock currently has a market capitalization of $870 million. Considering the NPV of key assets, the stock looks attractive. Once the assets start delivering EBITDA and cash flow, the upside potential is likely to be meaningful.
From a financial perspective, the company reported cash and equivalents of $167.2 million as of March 2021. It’s likely that Piedmont Lithium will need additional funding through debt or equity.
However, dilution is not a concern considering the EBITDA visibility once the company starts delivering lithium spodumene concentrate to Tesla (NASDAQ:TSLA).
Best Lithium Stocks to Buy: Albemarle Corporation (ALB)
With ambitious growth plans, Albemarle is among the most attractive lithium companies. ALB stock has also been in a steady uptrend with 63% returns for year-to-date 2021.
Currently, the company derives 40% of net sales from lithium. However, the sales contribution from lithium is expected to increase in the coming years. Albemarle has guided for sales growth at a CAGR of 24% to 28% over the next five years.
Further, the company expects adjusted EBITDA from the lithium segment to be $1.8 billion in 2026. For the same year, the company has guided for lithium adjusted EBITDA margin of 48%. Clearly, the segment is likely to be a cash flow machine in the next few years.
It’s also worth noting that ALB stock has an annualized dividend of $1.56 per share. Given the revenue expectation and the EBITDA margin upside, dividend growth is likely on a sustained basis. This is another reason to like ALB stock even when it trades at seemingly expensive valuations.
Along with revenue growth, Albemarle also expects to deleverage in the next few years. In 2020, the company reported net-debt-to-adjusted EBITDA of 3.4. By 2026, the company expects leverage to decline to 1.0 (mid-range of guidance).
Overall, Albemarle has strong fundamentals with the best of growth still to come. ALB stock is therefore worth holding in the core portfolio for the next few years.
Standard Lithium (SLI)
Among the smaller names, SLI stock looks interesting. The company has the largest reported lithium brine project in the United States. The project has an initial capacity of 20,900 tonnes with a targeted expansion to 70,000tpa.
It’s worth noting that the company has a strategic partnership with Lanxess (OTCMKTS:LNXSF). With a strong partner, the company is well-positioned from a funding and project execution perspective.
One of the differentiating factors for the company is a disruptive lithium extraction technology. The company believes that the technology is the key to unlocking significant resources.
Standard Lithium is also pursuing resource development of over 30,000 acres of separate brine leases located in southwestern Arkansas. Additionally, the company has 45,000 acres of mineral leases located in the Mojave Desert in San Bernardino County, Calif.
These projects provide medium-term exploration and reserves upside visibility. SLI stock therefore looks attractive at a current market capitalization of $966 million. From highs of $9.09, the stock has corrected to current levels of $6.7. I won’t be surprised if the stock doubles in the next few quarters.
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. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.