Crisis will turn into an opportunity for lithium stocks. That’s because supply issues are only temporary. And remember, as I noted on Jan. 21, “With some lithium mines shutting down or reducing production we could see less supply. This could help stabilize prices and send lithium prices higher with demand.”
Two, current lithium prices are not sustainable, as noted by Albemarle (NYSE:ALB). In fact, according to the company, prices will need to rise “in order to trigger the supply investments needed to meet long-term demand growth,” as quoted by Mining.com. “Lithium suppliers around the world are reining in spending and, in some cases, production after demand for the key component in electric-vehicle batteries slowed just as new mines started up.”
Three, we have to consider that some analysts forecast that “lithium supply is expected to enter a deficit relative to demand by 2025.”
Eventually, all will contribute to higher lithium prices, just as we’ve seen with prior dips. That being said, investors may want to start loading up on beaten-down lithium stocks. They won’t make you rich overnight, but once the lithium price boom returns, you’ll wish you bought in.
Albemarle (ALB)
After finding strong support around $110, Albemarle is back up to $124.86.
From here, if it can break above resistance at its 100-day moving average, I’d like to see it again challenge $140 in the near term. Helping, analysts at Loop Capital said ALB has room to run, with a price target of $162 and a Buy rating.
Motley Fool contributor Scott Levine, ALB’s best days aren’t behind it.
He wrote, “The company has an impressive operating history that stretches back to 1887. In that time, it has surely encountered headwinds — and withstood them, increasing shareholder value over the long term. Over the past 20 years, for example, Albemarle’s total return topped 1,000%, exceeding the S&P 500’s 576% total return over the same timeframe.”
We also have to consider ALB is cheap at just 9.3x earnings. Better, analysts at RBC Capital are maintaining a Buy rating on ALB, with a price target of $140.
Sociedad Quimica y Minera de Chile (SQM)
With a yield of 10.14%, Sociedad Quimica y Minera de Chile (NYSE:SQM) is showing signs of life.
After finding strong support at $40, SQM is now consolidating just under $50. From here, I’d like to see it eventually retest its December high of $64. As we wait for that to happen, we can just sit back and collect its dividend.
Unfortunately, earnings haven’t been so hot. But that’s to be expected with lower lithium prices. In its most recent quarter, SQM posted EPS of 71 cents, which missed by 37 cents. Revenues of $1.31 billion — down 58.1% year over year — missed by $50 million. But again, that really shouldn’t come as a big surprise in the current climate.
The good news is that most of the negativity has been priced into this stock. Better, analysts over at Loop Capital recently raised its price target on SQM to $62, with a Hold rating.
Piedmont Lithium (PLL)
We can also look at Piedmont Lithium (NASDAQ:PLL), another one of the top lithium stocks with big potential. Granted, its chart is a disaster, but don’t write it off just yet.
We’re still waiting to see if its North Carolina mine permit will be granted. If it is, the proposed mine could be significant. At the same time, it now holds all permits for its project in Tennessee, where it expects to start construction soon. Piedmont also partnered with Vinland Lithium to advance a project in Newfoundland, Canada.
Helping, “BMO Capital analyst Greg Jones initiated coverage of Piedmont Lithium with a Market Perform rating and $20 price target. Piedmont is developing an integrated lithium business with the objective of supplying the North American battery supply chain,” according to TheFly.com.
Should the company receive approval in North Carolina, I’d like to see the PLL stock rally back to at least $30 a share.
Atlas Lithium (ATLX)
After diving from about $34 to about $12, Atlas Lithium (NASDAQ:ATLX) is also showing some signs of life. For one, the company recently said it achieved full funding for its early revenue strategy to allow for the start of production later this year.
Two, the company just said the construction of its modular dense media separation lithium processing plant remains on track for completion in Q2 2024.
Three, as noted in ALTX press release, “Atlas Lithium’s plant progress bodes well for its goal to generate revenues by Q4 2024. As previously announced, Atlas Lithium has secured binding offtake agreements with key partners Chengxin and Yahua, who have committed $50 million for the right to purchase 80% of Phase 1 production capacity.”
Better, its Brazilian operations are located in Brazil’s Lithium Valley, which is considered to be a premier lithium jurisdiction. Plus, according to the Brazilian Geological Service (CPRM) “the region has at least 45 lithium deposits,” as noted in ATLX’s corporate deck.
iShares Lithium Miners and Producers ETF (ILIT)
We can also take a look at exchange-traded funds (ETFs), which offer a good deal of diversification at a lower cost. The iShares Lithium Miners and Producers ETF (NASDAQ:ILIT), for example, trades at just over $14 a share and offers exposure to 45 lithium stocks.
In fact, with an expense ratio of 0.47%, the ILIT ETF offers exposure “to global lithium miners and producers who could stand to benefit from an increased demand for this limited resource,” noted iShares. Some of its top holdings include Sociedad Quimica y Minera de Chile, Albemarle, Pilbara Minerals (OTCMKTS:PILBF), Arcadium Lithium (NYSE:ALTM) and Lithium Americas (NYSE:LAC) — to name a few.
What’s nice about the ILIT ETF is that we can buy 100 shares of it for about $1,400. If I were to buy 100 shares of just one of its 45 holdings — let’s use ALB — it would cost me over $12,400. I’d rather pay less and have greater exposure.
Global X Lithium & Battery ETF (LIT)
After bottoming out around $40, the Global X Lithium & Battery ETF (NYSEARCA:LIT) has since rallied to $46, where it’s consolidating. From here, I’d like to see it break higher with a test of $52 in the near term.
With an expense ratio of 0.75%, the LIT ETF invests in the full lithium cycle, from mining and refining the metal through battery production, says GlobalXETFs. It also has about 40 holdings, including Albemarle, Pilbara Minerals and Panasonic Holdings (OTCMKTS:PCRFY) — to name a few.
The last time lithium prices fell on supply-demand issues around 2018, the LIT ETF plunged from about $37 to a low of $19.20. As lithium showed signs of life and demand skyrocketed with the electric vehicle boom, the LIT ETF ran to a high of nearly $93.
The moment we see the next recovery in lithium, as supply fails to meet demand, I’d like to see the LIT ETF again challenge that high.
Amplify Lithium & Battery Technology ETF (BATT)
With an expense ratio of 0.59%, the Amplify Lithium & Battery Technology ETF (NYSEARCA:BATT) provides exposure to global companies that develop, produce and use lithium battery technology — all for less than $10 a share. BATT ETF has 89 holdings, including Tesla (NASDAQ:TSLA), Albemarle, Sociedad Quimica and Panasonic.
After sliding from about $13.50 to a low of $8.56 the BATT ETF is starting to pivot higher from oversold conditions. It last traded at $9.45. I’d like to see the ETF retest $10.59 initially.
It is another hot ETF that could double, even triple, when lithium prices and related stocks start to push well off their low. While simplistic to say, it’s only a matter of time before lithium recovers and takes the BATT ETF along for the ride.
On the date of publication, Ian Cooper did not hold (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
