For 2023, lithium prices have been in a correction mode after a massive rally last year. It’s not surprising that some of the top lithium stocks have been in a correction mode. However, I believe that this is a golden opportunity to consider some of the must-buy lithium stocks for the long term. Given the outlook through the decade, I believe that lithium stocks will deliver multi-bagger returns.
It’s a known fact that lithium demand has surged due to the rising adoption of electric vehicles. However, a big supply-demand gap is likely in the coming years. This will translate into lithium trending higher and lithium companies delivering robust free cash flows.
To put things into perspective, it’s expected that the lithium supply gap will be at least 1.1 million metric tonnes by 2035. This would be 24% less than the demand. Clearly, the outlook for lithium is bullish and it’s a matter of holding some of the top lithium stocks with patience.
Let’s discuss three massively undervalued lithium stocks that can deliver multi-bagger returns.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is among the most undervalued lithium stocks to buy. At a forward price-earnings ratio of 7.4, the stock seems poised to double in the next 12 to 18 months. Of course, ALB stock is worth holding for the long term as well.
One reason to like Albemarle is that the company is on a high-growth trajectory. For Q2 2023, the company reported sales and adjusted EBITDA growth of 60% and 69% respectively on a year-on-year basis. The company has also guided robust operating cash flows of $1.5 billion for the year.
Another reason to like Albemarle is its ambitious growth plans. The company expects lithium sales volume to grow at a CAGR of 20% to 30% through 2027. With high financial flexibility, Albemarle is positioned to make investments toward lithium conversion capacity expansion.
It’s also worth adding here that ALB stock currently offers an annual dividend of $1.6. Considering the growth plans, it’s one of the best dividend growth stocks to buy.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is among the must-buy lithium stocks before it skyrockets. For year-to-date, LAC stock has been sideways. However, considering positive business developments, a big rally is due.
From an asset perspective, Lithium Americas looks undervalued. The Thacker Pass project has an after-tax net present value of $5.7 billion and a 40-year life. Further, the company has a 44.8% interest in the Caucharí-Olaroz project in Argentina.
Once these assets commence production, Lithium Americas will be a cash flow machine. It’s worth noting that lithium is expected to trend higher in the long term. Price realization in the coming years is likely to be robust and will support cash flow upside.
Recently, the company’s shareholders approved the split of Lithium Americas into two entities. One entity will be focused on North America with the other being focused on Argentina assets. I believe that this split will result in value unlocking.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) stock is another attractive name among the must-buy lithium stocks. At a forward price-earnings ratio of 7.5, the stock looks undervalued and is poised for a big reversal rally.
As an overview, the company is focused on the development of its 100% owned lithium project in Northern California. The company has 100% ownership in the Tennessee and Carolina assets. Both these assets have a combined net present value of $5 billion.
It’s worth noting that the Tennessee and Carolina project will commence production in 2026 and 2027 respectively. However, the near-term stock price action will be triggered by the trend in lithium price coupled with the time progress in key projects.
The assets in Ghana and Quebec add to the company’s long-term production and cash flow visibility. In an important development, the company’s Tennessee project has received the final permits required to advance construction. Further, the Quebec project has been commissioned with the first commercial shipment due in Q3 2023. With positive business developments, I expect PLL stock to trend higher.
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.
