Lithium supply has been and continues to be under pressure as a result of global demand, and the global energy crisis has only increased the crunch of lithium. This will remain an issue for a while, and the head of Piedmont lithium states the following: “Yes, we’ll eventually have enough, but not by that time,”- Keith Phillips, CEO of Piedmont Lithium. “There’s going to be a real crunch to get the material. We don’t have enough in the world to turn that much lithium production in the world by 2035.”
This has meant that a number of lithium producers are witnessing record demand, which is leading in turn record revenues. The following stocks are likely to benefit from this trend as lithium producers hit record levels of sales. An average car requires around 8-10 kg of lithium and sales are expected to hit 6 million plus in 2022. 95 percent of all shipments will represent cars. That means demand for lithium is likely to be around 60 million kgs for the year. The production of lithium carbonate produced in 2021 was around 485,000 tonnes, and that number is likely to increase to 620,000-750,000 tonnes in 2022, and to around 900,000 in 2023.
Sociedad Quimaca y Minera de Chile is a company that produces lithium and has mines in and around Chile. Sales for the company increased by over 300 percent QoQ, and now the price-to-earnings stands at 13x. Considering the hypergrowth, mining capacity, and the forward p/e of 8x earnings the stock remains significantly undervalued. Free cash flow also continues to hit record levels, hitting $200 million in the most recent quarter despite significant reinvestment and capital expenditure to get operations in line with demand. And with the price of lithium heading upwards constantly, gross margins also continue to increase hitting 50% in the most recent quarter. Profit margins are also set to rise as the shortage results on the back of higher prices, and economies of scale.
Albermarle is another major lithium producer that is witnessing significant gain as a result of unprecedented demand, and the forward price-to-earnings has been currently projected around 10-13x earnings. The company continues to reinvest most of its cash and has a number of operational mines that are set to increase production. Management has also continued to increase their guidance in terms of revenue for the fiscal year and is likely to re-revise those estimates upwards. The market has been sleeping on this stock, and considering the quality of the company’s assets, Albermarle is set to significantly benefit from renegotiated contracts, which should send net profit up significantly as well. Furthermore, the company should become free cash flow positive by the end of the year as well
Standard Lithium is another company that is set to witness significant benefit from production and as mining operations ramp from mainly their Arkansas facility. The company is likely to see a significant increase in lithium output with initial projections looking at 9700 tonnes and eventually the total output could rise to 20,700 tonnes, total assets currently stand at 4.3 million tonnes LCE. The company has two projects the LANXESS project has a net present value of $1.43 billion and $989 million of after-tax NPV. Meanwhile, Southwest Arkansas has a net present value of $2.82 billion and an after-tax NPV of 1.95 billion. The quality of lithium should also play a key part in ensuring the company’s fortunes. Overall, revenue should rise significantly, and with high-quality operations, which include strong environmental standards the stock is likely to see significant gains, at which point valuations will be much more reasonable.
Finally, lithium has risks, especially if prices continue to rise, and traditional energy costs retreat, but the current economic dynamics of the global economic make lithium stocks increasingly to strong returns on investment in the near future.
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