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7 Overlooked Lithium Stocks That Could Outperform the Market

  • These are the overlooked lithium stocks to buy as they represent companies with quality assets.
  • Lithium Americas (LAC): Thacker Pass asset will deliver robust EBITDA and cash flows.
  • Piedmont Lithium (PLL): Commencement of production in 2023 and supply agreement with Tesla.
  • Li-Cycle Holdings (LICY): Will benefit from an impending surge in demand for lithium battery recycling.
  • Sociedad Química y Minera de Chile (SQM): Sustained growth in lithium production and visibility for dividend upside.
  • Core Lithium (CXOXF): Multiple lithium assets in Australia and a supply agreement with Tesla.
  • Rio Tinto (RIO): Aggressively expanding in the lithium segment through acquisitions.
  • Sigma Lithium (SGML): Annual free cash flow potential of $1.8 billion from high-grade lithium mine resources.
overlooked lithium stocks - 7 Overlooked Lithium Stocks That Could Outperform the Market

Source: tunasalmon / Shutterstock.com

Lithium is likely to remain an attractive investment theme beyond the decade. Some lithium stocks have already been market performers with the benefit of increasing sales volume and higher price realization. However, there are several overlooked lithium stocks that trade at undervalued levels. I believe that it’s a good time to accumulate these attractive stocks for long-term value creation.

In a recent report, Stifel analysts reaffirmed the growth in lithium demand. According to Stifel, there will be an increase in greenfield lithium projects in 2023 and beyond as producers look to match the growing demand.

Another research indicates that the lithium supply gap is likely to widen to 1.1 million metric tons by 2035. All of this points to higher lithium prices in the coming years. Lithium miners with quality assets are positioned to benefit.

Further, the net present value of assets will swell as lithium trends higher.

With positive industry tailwinds, let’s talk about seven overlooked lithium stocks to buy.

Ticker Company Price
LAC Lithium Americas $23.55
PLL Piedmont Lithium $64.48
LICY Li-Cycle Holdings $5.83
SQM Sociedad Química y Minera de Chile $86.24
CXOXF Core Lithium $0.68
RIO Rio Tinto $74.44
SGML Sigma Lithium Corporation $29.48

Lithium Americas (LAC)

smartphone with logo of Canadian company Lithium Americas Corp on screen
Source: Wirestock Creators / Shutterstock.com

I believe that Lithium Americas (NYSE:LAC) stock is still waiting to get the attention it deserves. Amidst several positive business developments, LAC stock is poised for a meaningful rally.

In an important development, Lithium Americas has received a favorable ruling for the Thacker Pass project. Last month, the company announced a partnership with General Motors (NYSE:GM) for the joint development of the asset. General Motors will be infusing $650 million in equity. Talking about the project potential, Thacker Pass has a mine life of 40 years and is expected to deliver an average annual EBITDA of $1.18 billion.

Lithium Americas also has a stake in lithium assets in Argentina. Last year, the company decided to split into two entities, Lithium Americas and Lithium International. The impending split is likely to unlock value.

Piedmont Lithium (PLL)

Person holding cellphone with logo of US mining company Piedmont Lithium Inc. (PLL) on screen in front of business webpage. Focus on phone display. Unmodified photo.
Source: T. Schneider / Shutterstock.com

Piedmont Lithium (NASDAQ:PLL) is another attractive name among overlooked lithium stocks. PLL stock has returned 43% in the last 12 months. However, it remains undervalued, considering the growth outlook and the positive tailwinds for the industry.

As an overview, Piedmont has 100% ownership in Carolina and Tennessee lithium assets. Both projects have a combined net present value of $5 billion. Further, the Ghana asset (50% interest) has an NPV of $1.3 billion, and the Quebec asset (35% interest) has an NPV of $571 million.

Given this strong pipeline of projects for commercialization, Piedmont is positioned to be a cash flow machine. It’s worth noting that the first production is expected in the coming months. This is likely to be a catalyst for PLL stock.

From the perspective of revenue visibility, the company already has an agreement with Tesla (NASDAQ:TSLA). Under this agreement, Piedmont has agreed to supply 125,000 metric tons of spodumene concentrate from 2H 2023 through 2025.

Li-Cycle Holdings (LICY)

numerous blue-colored batteries lithium stocks
Source: Shutterstock

Li-Cycle Holdings (NYSE:LICY) stock is an interesting play in the lithium business. The company is involved in the business of lithium-ion battery resource recovery. As demand for batteries surges, the demand for lithium recycling will also increase. LICY stock has declined by 20% in the last 12 months. This correction is a good accumulation opportunity.

Currently, the company’s plant is under construction. However, there are two important points to note. First and foremost, commissioning of the project is expected in late 2023. This is a potential stock upside catalyst. Furthermore, Li-Cycle Holdings reported $580 million in cash. The company has ample financial flexibility to set-up the plant without delays.

In June 2022, Glencore (OTCMKTS:GLNCF) announced a $200 million investment in Li-Cycle. The former will be an important partner in the sourcing of battery feedstock. Overall, Li-Cycle seems positioned for strong growth in 2024 and beyond. It’s therefore a good time to consider some exposure.

Sociedad Química y Minera de Chile (SQM)

Sociedad Quimica y Minera logo displayed on a mobile phone with the company's web page on it. SQM stock
Source: madamF / Shutterstock.com

Sociedad Química y Minera de Chile (NYSE:SQM) stock is for dividend seekers and has significant upside potential. Currently, SQM stock offers a dividend yield of 9.47%. Further, the stock trades at a forward price-earnings ratio of 6.97. I would not be surprised if SQM stock doubles in the next 24 months.

For the last 12 months, SQM reported revenue and EBITDA of $8.7 billion and $4.7 billion respectively. However, 73% of the company’s gross profit was from lithium and derivatives. The segment is therefore the cash flow machine.

It’s also worth noting that SQM expects to double lithium production between 2022 and 2024 (cumulative capacity of 265,000 metric tons). Further, by 2025, the company expects lithium hydroxide refining capacity in Chile to reach 100,000 metric tons. This provides visibility for cash flow upside. As cash flows increase, SQM stock is also attractive from the perspective of sustained dividend growth.

Core Lithium (CXOXF)

a lithium mine
Source: Shutterstock

Core Lithium (OTCMKTS:CXOXF) stock is another name among overlooked lithium stocks that’s worth considering. CXOXF stock is undervalued and is poised for a meaningful rally.

As an overview, Core Lithium has a 100% ownership interest in the Finniss lithium project in Australia. The asset has 15 million tons of mineral resources at 1.3% lithium oxide. The stock has a catalyst for first-concentration production in the first half of 2023. Core Lithium also has ownership in multiple projects that are likely to be developed with cash flows from the Finniss asset.

Another vital point is that the company has already agreed to supply lithium to Tesla. Currently, the agreement is for four years. During this time, Core Lithium will supply Tesla with 110,000 tons of lithium spodumene concentrate. With revenue visibility in 2024 and beyond, I am bullish on the stock.

Rio Tinto (RIO)

the rio tinto (RIO) logo on a building during daylight
Source: Rob Bayer / Shutterstock.com

In the broad sense, Riot Tinto (NYSE:RIO) is not among the overlooked stocks. However, the markets are yet to discount the fact that the company is making significant inroads in lithium mining. I also like RIO stock at a forward price-earnings ratio of 8.5. Additionally, the stock provides investors with a dividend yield of 9.16%.

The iron ore segment remains the cash cow for Rio Tinto. The company has, however, been diversifying to benefit from growth in the clean energy segment. With strong financial flexibility, Rio is positioned to grow aggressively through acquisitions.

For example, the company has committed $2.4 billion to the Jadar lithium-borates project in Serbia. It’s one of the largest greenfield lithium projects in the world. The project will position lithium as the largest source of lithium supply for the next 15 years. Further, in March 2022, Rio completed the acquisition of the Rincon lithium project in Argentina for a consideration of $825 million.

Sigma Lithium Corporation (SGML)

a pile of lithium
Source: Bjoern Wylezich/ShutterStock.com

Sigma Lithium (NASDAQ:SGML) stock has been a value creator with an upside of 180% in the last 12 months. I, however, remain bullish on SGML stock for a further rally after some consolidation.

As an overview, Sigma Lithium is engaged in the exploration and development of lithium resources in Brazil. Currently, the company holds 27 mineral rights in four properties spread over 19,000 hectares. This includes nine past-producing lithium mines.

Sigma Lithium assets currently have an after-tax net present value of $15.3 billion. The average annual free cash flow potential is $1.8 billion, with a mine life of 13 years. The company also claims to have one of the highest-grade lithium resources. A relatively shorter mine life is not a concern, as the company will have ample flexibility to pursue acquisitions once production commences.

From a financial perspective, Sigma Lithium has a strong balance sheet and is fully funded until August 2023. Even if the company pursues dilution or leveraging, it’s not a concern considering the FCF potential of the asset.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in 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.


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