Lithium Demand Is Expected to 20X by 2040. 3 Stocks to Ride the Wave.

Muslim Farooque

March 4, 2024 4 min read

Lithium stocks are primed for a powerful rebound, positioning them for long-term gains. Moreover, the recent downturn in lithium stocks, on the back of fleeting oversupply, unveils a golden opportunity for investors. Additionally, lithium prices are on the brink of a breakout due to diminishing supply from mine closures and scaled-back production. Also, the prospect of interest rate cuts later in the year further brightens its outlook, sparking renewed enthusiasm for green energy and electric vehicles (EVs). The dip in lithium prices is set to reverse as higher prices become imperative in catering to escalating long-term demand.

Furthermore, the shift towards rechargeable lithium-ion and polymer batteries and the growing adoption of renewable energy storage projects could cause the industry to expand twentyfold. This underscores lithium’s key role in the global energy and technological landscapes, making now an ideal time for long-term investors to wager on lithium stocks.

Lithium Americas (LAC)

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Lithium Americas (NYSE:LAC) stock is down roughly 12% year-to-date (YTD), retracting sharply from its 52-week high $11.80, due to a downturn in lithium prices. However, the correction is just a momentary setback. It still offers a robust strategic investment opportunity. Its crown jewel, the Thacker Pass asset in the U.S., boasts a massive after-tax net present value of a whopping $5.7 billion. The robustness of the asset is shown by its mine life of roughly 40 years. The project also has the potential to generate an average annual EBITDA of $1.1 billion.

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Though Lithium Americas won’t start lithium production until 2026, the likely rebound in lithium prices by then makes it a highly attractive bet at this time. Consequently, Tipranks’ analysts deemed LAC stock a ‘moderate buy’ based on five ratings, expecting a 53% bump from current prices. Therefore, this lithium play is a remarkable buy at current levels, offering tremendous long-term upside.

Sociedad Quimica y MInera (SQM)

a construction worker looks on as an excavator gets to work in a mine. Mining Stocks

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Sociedad Quimica y MInera (NYSE:SQM) is a stalwart in the Chilean chemicals sphere that has effectively weathered the storm in the lithium space with resilience. Despite a major downturn in lithium futures, the firm’s operational prowess has kept it in a profit-making position. In its most recent quarter, its shares witnessed a more than 7% uptick. That is despite a better than 50% plunge year-over-year (YOY) in revenues and earnings.

Nevertheless, the record-breaking revenues of approximately 51,000 metric tons of lithium in the fourth quarter (Q4), despite a 73% drop in average price, underscored the incredible demand underpinning the sphere. SQM is doubling on this demand by expanding its capacity and forging new deals, particularly with Codelco, in anticipation of the EV boom. Furthermore, it distinguishes itself with a compelling dividend strategy, boasting a generous yield of 10.1%. Additionally, the yield is supported by an annual payout of $5 and a five-year growth rate of 23.2%. It showcases SQM’s commitment to enhancing shareholder value.

Arcadium Lithium (ALTM)

numerous blue-colored batteries lithium stocks

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Arcadium Lithium (NYSE:ALTM) is a beacon of value in the volatile lithium sphere. It trades at an appealing 5.6 times earnings. Amidst the drop in lithium prices, company CEO Paul Graves points to economic hurdles facing expansion projects at current prices. It implies a powerful snapback. Furthermore, the company’s latest earnings report lends credence to its optimistic outlook. Its EPS of 34 cents surpassed consensus estimates by 11 cents despite a sales dip to $181.8 million.

ALTM’s financial robustness and profitability metrics are particularly impressive in comparison to industry counterparts. The company boasts a leveraged free cash flow (FCF) margin of 35.7%, significantly outperforming the sector median. Furthermore, ALTM’s return on common equity stands at an impressive 17.7%, a substantial leap of 482.4% over its five-year average. Additionally, its return on total capital stands at 11.7%. That is more than double the sector median, marking a 221.9% increase from its five-year average.

On the date of publication, Muslim Farooque 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

Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.