The lithium sector has lost its charge over the past year. Investors had gravitated to lithium stocks as seemingly inevitable winners in the EV revolution. But as EVs had an off year, demand for lithium plunged.
This led to a regrettable turn of events for the lithium sector; the Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) has fallen more than 35% over the past 12 months. As a result, LIT shares are now back to levels last seen in 2020 despite all the progress in the EV space since then.
Some investors are throwing in the towel on lithium stocks entirely. That’s an understandable impulse. But the long-term electrification of the transportation sector isn’t going anywhere. For investors that can stomach the volatility, these three lithium stocks could deliver multi-bagger returns when the cycle turns upward.
Albemarle (ALB)
Albemarle (NYSE:ALB) is one of the world’s leading lithium and specialty chemical companies. Headquartered in North Carolina, it has operations spanning the U.S., Chile, and Australia.
ALB stock has lost more than 55% of its value over the past year. That’s an astounding decline, given that Albemarle is a large firm with a decades-long history of consistent profitability. Despite its global footprint, Albemarle has gotten caught up in the current lithium bust.
Last year, Albemarle first sank due to concerns around the Chilean government. Initial media reports spoke of a “nationalization” of Chilean lithium, though this was quickly clarified to indicate that it was merely a public-private partnership strategy for future lithium contracts. Despite that, the damage was done as investors pulled their capital out of Chilean-exposed lithium stocks, even as Albemarle has extensive operations in other countries as well.
Beyond the political jitters, the collapse in the lithium market has terrified investors. Chinese lithium futures contracts have fallen approximately 75% over the past year as that economy has faced a tremendous slowdown.
Times certainly look tough now. But Albemarle has proven its mettle over the years; the company is a Dividend Aristocrat, and is committed to rewarding its shareholders through both the good and challenging times. While 2024 will have its obstacles for lithium producers, Albemarle is built for the long-haul.
Sociedad Química y Minera (SQM)
Sociedad Química y Minera (NYSE:SQM) is a leading Chilean chemicals company. In addition to lithium, SQM is also involved in a variety of other products used primarily for agricultural inputs.
SQM has faced a perfect storm. It was caught up in the same political jitters as Albemarle as it relates to lithium contracts with the Chilean state. In addition, SQM’s agricultural business has also slowed as crop prices have plunged from their prior 2022 highs. While SQM’s business is internally diversified, various end markets are showing weakness today.
Despite the collapse in lithium futures, SQM remains strongly profitable. Analysts see the company selling for just eight times projected 2024 earnings, and that’s even as earnings are currently depressed. SQM also has a history of paying large dividends, which help reward loyal shareholders who stick with this leading lithium stock over the years.
Global X Lithium & Battery Tech ETF (LIT)
The Global X Lithium & Battery Tech ETF is another great way to get exposure to the lithium stocks space. Given the current industry doldrums, it could be quite risky to buy individual lithium mining or exploration companies unless they have a strong history of profitability.
However, there is still the appeal of buying some of the more volatile and beaten down battery and lithium stocks during this industry bust.
Thus, the Lithium & Battery ETF gives investors safer exposure to the whole industry. It currently has approximately 40 holdings in battery companies, lithium miners, EV firms, and other enterprises central to the electrification ecosystem. It has holdings in Japan, South Korea, China, and Australia among other countries, giving American investors access to the global lithium market.
LIT shares reached an all-time high of more than $90 per share in 2021, making today’s $42 price a considerable discount.
On the date of publication, Ian Bezek 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.
