Artificial intelligence (AI) drove much of the market’s growth in the first half of 2023. However, whereas the AI space is still taking shape, there’s another sector that’s off to a great start. I’m referring to lithium. Despite that growth, there’s still time to invest in high potential lithium stocks.
Demand for lithium is forecast to remain strong for several years. Lithium is a vital element that will be used in many of the technologies that are expected to explode in the next decade. One of the most obvious applications that will require lithium is the lithium-ion batteries that are the current standard for electric vehicles.
So, should investors go full speed ahead on lithium stocks in July? Maybe, but some caution is advised. The list of pure-play lithium stocks is small. However, this is still a sector that will be more volatile than most sectors. That means the advice to buy the best and forget the rest is as true in this sector as it is in other sectors.
Here are three high potential lithium stocks that are likely to continue this sector’s winning streak.
Albemarle (NYSE:ALB) is one of the recognized leaders among lithium companies. This isn’t a mining company, but rather a downstream company that processes lithium for use in many applications. With a planned $4 billion spend in Australia, Albemarle will be the largest lithium producer in Australia.
This investment comes on the heels of the company’s 2022 announcement of its plans to build a lithium processing plant in the United States. When it’s complete, it will be able to produce much of the electric vehicle battery metal in that one location as it does globally today. The incentives provided by the passage of the Inflation Reduction Act in 2022 is accelerating the timeline for this plant.
Those are key reasons why the company projects annual revenue growth of 35% to 55% this year with 20% to 30% of that being from lithium sales.
If there’s one glitch, it could be that earnings are expected to decline on a year-over-year basis. However, if the company’s last quarter is any indication, analysts may be adjusting those estimates higher.
Sociedad Química y Minera S.A. (SQM)
Sociedad Quimica y Minera S.A. (NYSE:SQM) is a mining company that mines for lithium along with other fertilizer and chemical inputs. However, in the company’s most recent quarter, more than half of the company’s revenue came from lithium.
That number is likely to move higher. Lithium will be heavily used by EV manufacturers. This is creating an arms race of sorts among these companies to ensure they have a reliable supply. SQM recently signed an agreement with Ford (NYSE:F). The long-term agreement will ensure that Ford has a steady supply of lithium carbonate and lithium hydroxide, both of which are essential for lithium-ion batteries.
Analysts are projecting a downturn in earnings in 2023. That’s part of the reason that SQM stock is down more than 9% in the last 12 months. However, analysts still give the stock an 18% upside. While you’re waiting for the bounce back, SQM pays a respectable dividend that currently yields 2.67%.
Amplify Lithium & Battery Technology ETF (BATT)
Exchange-traded funds (ETFs) like the Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT) are good options for investors who want exposure to a sector like lithium. The best funds provide this exposure while minimizing the risk that comes from owning one or two individual stocks.
However, with ETFs you are taking the bad along with the good. This can mean you have exposure to stocks you would rather do without.
However, the list of pure-play lithium stocks is small. That means an ETF that has lithium stocks as one of its focuses should be a solid option. Not only will you own both of the high-potential lithium stocks listed above, but you’ll get exposure to some of the other top lithium stocks as well.
You also get this exposure at an expense ratio of just 0.59%. However, be advised that many of the holdings in this fund are small-cap companies. That will make this more volatile than other ETFs; however, the nature of this type of investment should at least smooth out your risk across the broader sector.
On the date of publication, Chris Markoch did not have (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.