With big oil looking to get into lithium production, investors might wonder if lithium stocks are the best way to play the ongoing demand for the alkali metal.
The Energy Mix recently reported comments from TechMet Chief Executive Officer (CEO) Brian Menell. He said, “There are a number of oil and gas majors putting a lot of time and attention into how they can become big in lithium.”
“It’s a natural evolution for oil companies,” Menell said. “Lithium brines are an obvious one as unlike charging networks and wind farms, where [the fossil companies] have no skills besides project management, they are skilled at subsurface pumping and fluids.”
I’ve been tasked with recommending three lithium stocks to buy. It’s possible that one or more of them could be oil and gas producers. It’s also possible that there are better ways to play the ongoing demand for lithium, including electric vehicle (EV) stocks, etc.
Here, then, without further delay, are three lithium stocks with attractive entry points.
Equinor (EQNR)
The article in the introduction mentions four companies from big oil looking to get a piece of lithium production. Equinor (NYSE:EQNR), the Norwegian oil giant previously called Statoil, is one of the four. It has a price-to-sales (P/S) ratio of o.6x, considerably less than Exxon Mobil’s (NYSE:XOM) P/S ratio of 1.21x.
I recommended EQNR stock in March 2022, suggesting multiple reasons for buying its stock, including that it expected to generate $45 billion in free cash flow from its oil business in the five years between 2021 and 2026 and that its renewable energy business was growing by leaps and bounds.
As for the company’s lithium ambitions, its venture arm invested in a $20.5 million pre-series B funding round in March for Green Li-ion, a Singapore-based startup that’s developed an innovative technology allowing the company to recycle and reuse the metals from old lithium batteries in the form of new battery-grade cathode material for new batteries.
“Green Li-ion’s technology installation will be among the first in the U.S. to produce battery-grade precursor cathode active material (pCAM), graphite and lithium carbonate from spent lithium-ion batteries,” stated Green Li-ion in its March 13 press release.
However, the company’s efforts have primarily revolved around battery storage rather than actual lithium production. Nonetheless, it has the cash flow to be a significant player in lithium-related projects.
Plus, its shares remain attractively priced relative to its peers.
Sprott Lithium Miners ETF (LITP)
As a Canadian, I couldn’t resist the Sprott Lithium Miners ETF (NASDAQ:LITP).
The fund is one of six ETFs managed by Sprott Asset Management LP, an industry leader in precious metals and real assets investment strategies. The parent, Sprott Inc. (NYSE:SII), was founded by billionaire Eric Sprott in 1981. Sprott retired from the firm in 2017. The man is an icon in the precious metals industry on both sides of the border.
LITP, as its name suggests, is a pure-play lithium ETF that tracks the performance of the Nasdaq Sprott Lithium Miners Index, a collection of companies that generate at least 50% of its revenue and/or assets from mining, exploration, development or production of lithium. It generally holds between 40 and 50 positions.
According to its prospectus, the top five stocks by weight individually can’t exceed 9.75%. Collectively, the five can’t exceed a 48.75% weighting.
The fund has just $4.7 million in net assets. However, it was only launched in February, so it gets a pass. LITP currently has 48 holdings, with the top 5 right on the line, with a weighting of 48.75%. The top three all exceed 10%. They’ll be rebalanced down to 9.75% in December.
I thought about selecting Albemarle (NYSE:ALB), a leader in lithium production, but LITP gives you so much more for a reasonable management expense ratio of 0.65%.
BYD (BYDDY)
The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) is another lithium-related fund. It’s been around since July 2010, amassing $3.25 billion over 13 years. One of its top 10 holdings is BYD (OTCMKTS:BYDDY), the Chinese battery-electric vehicle (BEV), plug-in hybrid vehicles (PHEV) and internal combustion-powered (ICE) auto manufacturer.
BYD is best known as the company Warren Buffett bet on in 2008, scoring a massive gain in the 15 years since. In 2023, Buffett’s gradually cut Berkshire Hathaway’s (NYSE:BRK.B) stake. It’s down to 9.0% as of June 19.
There’s some speculation that Buffett and Vice Chairman Charlie Munger don’t want to own a company competing with Elon Musk. I don’t know true the belief is, but it makes for a good story.
In mid-July, BYD said its profit for the first half of the year would be $1.64 billion, 225% higher than a year earlier, on sales of 616,810 BEVs, 91% higher than a year ago, 69% of Tesla’s (NASDAQ:TSLA) global production.
In July, BYD delivered 134,800 BEVs and another 126,305 PHEVs, considerably higher than in July 2022. It and Tesla dominate the Chinese market.
It’s an intelligent way to play the lithium market.
On the date of publication, Will Ashworth 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.
