Lithium stocks offer an unprecedented opportunity for investors

Lithium has been a commodity that has been at the center of the global news cycle in 2022. Lithium prices have jumped nearly 500% as demand continues to rise from electric vehicles and other technological devices such as smartphones. However, lithium stocks have recently pulled back due to analysts’ forecasts that lithium prices will fall aggressively in 2023. Either way, the forecasts currently turn out to be incorrect, which could give investors the opportunity to buy the drop.

Lithium continues to experience high demand and supply shortage

Lithium demand continues to fuel a lithium shortage, resulting in a shortfall pegged at around 8,000 MT, and lithium prices continue to be under pressure. Electric vehicle sales grew 108% in 2021 to 4.2 million units and are expected to grow another 30% in 2022. Tesla is expected to be the biggest contributor to electric vehicle sales. Still, several automakers are expected to either bring new models to market or ramp up production for the year. Analysts’ forecasts were based on the assumption that as the price of electric vehicles rises due to a surge in lithium prices, this will lead to lower demand for the vehicles themselves and, combined with a oversupply, lithium prices would also decline. But, with energy prices at record highs, demand for electric vehicles remains strong and supply also continues to be tight.

The price of lithium has increased to $70/kg, from $18/KG in 2021, but could fall to around $50/kg if demand declines. Currently, there is no indication that demand will decrease, with demand from markets such as Europe and China remaining high. High energy prices have become a problem in places like Europe, where the cost of owning a car continues to rise. As a result, many consumers have decided to switch to electric vehicles. The average age of vehicles on the road has also reached an all-time high, further adding to demand. While some consumers are responding by buying used cars, many are choosing to opt for electric vehicles, despite their rising costs.

Therefore, with everything going on, lithium prices will remain high. And due to high prices and supply shortages, lithium stocks could continue to post positive returns. On the other hand, if the global economy slows down and energy prices fall, demand for lithium could also fall. But for now, the environment remains favorable.

Lithium stock you can consider for your wallet

Livent (NYSE: LTHM) is an integrated lithium-producing company. It offers a range of lithium-based products, including lithium carbonate. The company is a key player in the lithium battery industry and counts BMW among its customers. Livent is expected to significantly increase production in 2022, generating revenues of approximately $800 million for the year. Management also said it expects EBITDA to be around $300-350 million. In the first quarter, net income was $54 million, with earnings per share (EPS) at 24 cents. Management expected total profitability for the year to be around $200-250 million, and EPS could be around 1.10. Therefore, the stock’s forward P/E should be around 20 to 25 times. Livent made numerous acquisitions throughout the year and plans to ramp up production through 2023 to meet customer demand. Considering that the outlook for lithium remains strong, the company is well positioned to take advantage of the increased demand for lithium.

Albermarle Corporation (NYSE:ALB) is a specialty chemical company and the world’s largest supplier of lithium-ion batteries. It operates two major mining facilities, one in Chile and the other in Nevada, United States. It also owns a 49% stake in an Australian lithium mine. Albermarle considers Panasonic and Samsung to be its customers. The company has benefited greatly from the increase in demand and expects a significant increase in profits for the year. Revenue was $1.1 billion in the first quarter, a year-on-year increase of 44%. Net income is expected to be $1.3 billion to $1.5 billion for the year, and the company is currently trading at a forward P/E of 17x. Management plans to double capacity over the next two years from the current 88 LCE metric tonnes, which should help Albermarle meet demand and translate into strong revenues in 2023 and 2024 as well. Overall, the company should continue to post strong returns as it benefits from the current climate.

Companies mentioned in this article

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