With accelerated adoption of electric vehicles, lithium demand has surged. There are various estimates that indicate multi-fold increase in lithium demand over the next decade. That will only go to help lithium stocks.
Some of the best lithium stocks have already witnessed a sharp rally in 2020 and 2021. It’s likely that the rally will sustain in 2022 and demand continues to grow.
Lithium carbonate demand in 2020 was 305,000 tons. For 2021, it’s expected that demand will increase to 452,000 tons. Additionally, demand is expected to increase by 14-fold to 1.8 million tons by 2030.
Another August 2021 report suggests that global lithium demand is “accelerating at a faster clip than previously thought.” This is important from the perspective of lithium price. With the demand-supply scenario likely to remain tight, lithium producers are positioned for attractive price realization in the coming years.
Here are three of the best lithium stocks that are positioned for a rally in 2022:
Lithium Stocks to Buy: Lithium Americas (LAC)
LAC stock already surged by nearly 200% in the last 12 months. However, considering the long-term potential, I believe that accumulation can be considered on dips.
In terms of the asset base, Thacker Pass has an annual production capacity of 60,000 tons of lithium carbonate and a mine life of 46 years. Further, the asset is likely to deliver an average annual EBITDA of $520 million. At a discount rate of 8%, the project has an after-tax net present value of $2.6 billion.
Additionally, the Cauchari-Olaroz project has a production capacity of 40,000 tons per annum. The project life is 40 years with an annual EBITDA potential of $308 million.
Once these projects are operational, Lithium Americas will have an annual EBITDA potential of $800 million. It can potentially be higher depending on the lithium price. Clearly, the company still looks attractive at a market capitalization of $3.7 billion.
From a financial perspective, the company reported cash and equivalents of $480 million. Recently, the company also announced a $225 million offering of convertible notes. There is ample liquidity buffer for near-term project development.
Overall, LAC stock is worth holding for the long term. With positive industry tailwinds coupled with high quality assets, the stock is a value creator.
Albemarle Corporation (ALB)
ALB stock is also among the best lithium stocks to consider for the medium to long term. The stock has corrected from recent highs of $291 to current levels of $218. I believe that gradual accumulation can be considered.
For Q3 2021, the company reported lithium sales of $354 million, which was higher by 33% on a year-on-year basis. For the same period, the segment adjusted EBITDA was $123 million. This would imply an annualized adjusted EBITDA of $492 million.
Overall, the lithium, bromine and catalyst business segments reported adjusted EBITDA of $863 million for the third quarter. The key point to note is that Albemarle expects adjusted EBITDA to increase three-fold by 2026. A large part of this growth is likely to come from lithium expansion.
Therefore, the company has multi-year growth visibility. Importantly, with a credit rating of BBB (stable outlook) from S&P, the company is unlikely to have any funding headwinds.
ALB stock also has an annualized dividend of $1.56. Considering the growth potential in the next five years, the stock is also a quality dividend growth name to consider.
Lithium Stocks to Buy: Livent Corporation (LTHM)
LTHM stock has witnessed positive momentum in the recent past. The stock has trended higher by 27% in the last six months. It seems likely that the rally will continue.
Livent is a leading vertically integrated pure-play producer of low-cost lithium. The company is a seller to electric vehicle OEMs and battery manufacturers globally.
For the current year, the company expects revenue of $400 million (mid-range) and an adjusted EBITDA of $67 million.
The key point to note is that Livent has a current production capacity of 20,000 metric tons of lithium carbonate. The company expects to increase capacity to 40,000 metric tons by Q4 2023.
Additionally, with the expansion in Argentina, capacity is likely to ramp up to 60,000 metric tons beyond 2023. Therefore, there is clear revenue and EBITDA growth visibility over the next few years. This makes LTHM stock attractive for the long term.
From a financial perspective, Livent reported cash and equivalents of $195.3 million as of September.
The cash buffer will support near-term expansion plans. Additionally, the company has guided for operating cash flow of $55 million for 2021. As cash flows accelerate, internal funding will support further organic and inorganic growth. Overall, LTHM stock is among the best lithium stocks to consider for 2022 and beyond with big expansion plans being the catalyst for sustained upside.
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 modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.