The price of lithium is down by more than 15% in 2024. Declines are much steeper over the last 12 months. That’s leaving many operators to find ways to cut costs across an industry that was once booming. Meanwhile, investors continue to wonder whether it makes sense to invest in lithium stocks at all. I think the answer to that question is a resounding yes.
The industry is dealing with a classic oversupply situation. Producers scrambled to take advantage of soaring prices as the EV market took off. Too many producers became engaged in efforts to supply the market. They created a glut of supply that continues today. It isn’t unlike what happened with the semiconductor market over the past few years. The results for both industries have been the same: Inventory drawdowns are necessary, and it is a buyer’s market.
Some industry experts expect a modest recovery and prices to begin this year and extend into 2025. Those same experts believe alternative battery chemistries coming to market in 2026 will exert additional pressure on the lithium sector. That opens a window of opportunity for the short to medium term, with these lithium stocks appearing to be particularly suitable.
American Lithium (AMLI)
American Lithium (NASDAQ:AMLI) isn’t very different from a lot of other lithium opportunities in most regards. The stock has lost a lot of value and represents an opportunity for redemption in the future. Investors are well aware that the opportunity is speculative and the risks are high.
It continues to offer opportunities to investors based on multiple technical indicators. My colleague Ian Cooper covered those technical indicators well in a recent article of his about American Lithium. He suggested that American Lithium is now in oversold territory, and based on its history, it often jumps when it enters such a position.
If investors do believe American Lithium is a stock to buy now, the reason is the long-term potential of its projects. In particular, the Falchani lithium deposit in Peru. Early this year, American Lithium upgraded the lifetime value of that project to $5.11 billion, with a serviceable life of 32 years. It’s arguable that American Lithium is worth buying due to the technical indicators suggesting that it’s oversold. Over the longer term, there’s much more potential money to be made due to the value of its mining resources.
Albemarle (ALB)
Albemarle (NYSE:ALB) is probably the safest lithium stock for investors to consider. It’s the biggest of the lithium companies as measured by market capitalization. Albemarle also continues to pay a dividend, which further suggests that it has stability, relative to its competitors.
Despite being the most stable of the lithium stocks, it also has substantial upside. Shares currently trade for $81 and benefit from a consensus target price above $116.
None of this is to say that Albemarle has been unfairly maligned. The company reported a loss of $1.96 in earnings per share during the second quarter. It has had to realign its strategy globally. The company recently decided to halt previous expansion plans of its Kemerton operations in Australia. Albemarle plans to reduce its workforce at that plant by 40%. Investors should expect Albemarle to continue to eat losses as prices for lithium remain muted.
However, those prices are nearly certain to rise in the future and Albemarle is not going to shut down. It’s a pretty simple bet worth making and there’s plenty of upside to justify doing so.
Ganfeng Lithium (GNENF)
Ganfeng Lithium (OTCMKTS:GNENF) is a lot like Albemarle in that it is a relatively safe lithium play and one that is undervalued at the moment. The stock trades over the counter and represents a Chinese rare Earth minerals firm that is the third largest lithium producer globally.
It is the size of Ganfeng Lithium that makes me believe it is undervalued. Currently, investors are paying just over $26 for a dollar of the company’s earnings. That’s roughly half of its median over the last 10 years and it is middle of the road for chemicals firms.
The company’s forward P/E ratio is about 20. That’s a strong indication the markets believe in the company and investor demand for its equity moving forward. The point here is that Ganfeng Lithium is arguably one of the safest plays in what is an overall volatile sector. The future looks strong.
On the date of publication, Alex Sirois 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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
