Lithium stocks have disappointed investors in 2023. This has been on the back of a sharp decline in lithium prices in the last few quarters. I believe that the concerns related to lower demand for lithium is overstated and lithium is poised for a sharp reversal rally. In-line with this view, I believe that it’s a good time to consider exposure to some of the best lithium stocks.
My view is underscored by various projections on the long-term demand for lithium. McKinsey believes that the entire “lithium-ion (Li-ion) battery chain, from mining through recycling, could grow by more than 30% annually from 2022 to 2030.”
Another report indicates that the demand for lithium batteries will increase five-folds by 2030. With the growth in demand, it’s expected that the lithium supply-gap will be 1.1 million metric tons, or 24% less than demand by 2035. These estimates clearly indicate a bullish outlook for lithium in the coming years. Therefore, some of the best lithium stocks are positioned to deliver multibagger returns.
This column discusses three lithium stocks that look interesting for the coming quarters. These stocks are also worth considering for the next five years.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) stock performance has been unimpressive for year-to-date. The decline in ALB stock is a result of lithium prices trending lower, which has impacted price realisation and EBITDA margin. However, the stock seems deeply undervalued at a forward price-earnings ratio of six. I expect a strong reversal rally in next year with the company pursuing aggressive expansion plans.
To put things into perspective, Albemarle reported lithium conversion capacity of 200ktpa as of 2022. The target is to triple capacity by 2027. With the assumption that lithium trends higher, the outlook for revenue and cash flow upside is robust.
It’s also worth noting that Albemarle has bid for the acquisition of Liontown Resources for a consideration of $4.3 billion. The acquisition is expected to generate internal rate of return that well above Albemarle’s weighted average cost of capital. Considering the financial flexibility, the inorganic route will also boost the Company’s growth outlook.
Lithium Americas (LAC)
With the split of Lithium Americas (NYSE:LAC) completed, I believe that it’s a good time for exposure. While Lithium Americas (Argentina) (NYSE:LAAC) also looks interesting, I would go for LAC stock if I had to choose one.
As an overview, Lithium Americas owns the prized Thacker Pass asset. The asset has a mine life of 40 years with an after-tax net present value of $5.7 billion. It’s worth noting that General Motors (NYSE:GM) is the largest shareholder and an offtake partner for the project. This provides clear cash flow visibility once production commences.
It’s also being reported that the Department of Energy is weighing a $1 billion loan for the Thacker Pass project. If approved, this will be the largest largest-ever loan for a mining company. Therefore, the potential loan coupled with the backing of General Motors will ensure that financing the project is not a challenge.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) is another name among lithium stocks that looks attractive after a meaningful correction. A forward price-earnings ratio of 7.8 indicates that the stock is trading at a valuation gap.
Even from an asset valuation perspective, PLL stock looks massively undervalued. Piedmont has 100% ownership in Carolina and Tennessee lithium projects. Both of these assets have a combined net present value of $5 billion. Currently, Piedmont commands a market valuation of $675 million. Of course, production is few years away, but I expect the valuation gap to close in the next 12 to 24 months.
I must also mention that Piedmont has 25% economic interest in the Quebec asset. Commercial shipments from the asset have already commenced. Once lithium trends higher, sales and cash flows from the asset will positive impact PLL stock.
In another important development, the Company has received approval to advance construction at the Tennessee project. The project has a planned capacity of 30,000 tons per year with first production expected in 2026.
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.
