Three Lithium Stocks To Buy Now And Sell Never (NYSE:ALTM)

When we think of lithium, we may think of Tesla (TSLA), superchargers, Gigafactories, and everything else associated with electric vehicles, “EVs.” After all, EVs are powered by “significant numbers” of rechargeable lithium-ion batteries. However, everything from cell phones to laptops, electric toothbrushes, scooters, solar power backup storage devices, and much more runs on lithium.

Lithium is the lifeblood of our global economy and represents the future much more than oil and other dated commodities, in my view. Luckily, the market seems to be significantly behind the curve here. There are only a few significant lithium-producing and service companies that should control this massive, rapidly expanding market in the coming years.

Another remarkable factor is that lithium prices have nosedived due to ultra-high interest rates, a transitory slowdown in car sales (especially EVs), a general slugs economy, and temporary oversupply issues.

As the Fed cuts rates (likely June/July), we should see a rebound in auto and EV sales. The economy won’t be in a slowdown forever, and growth provided by a more accessible monetary policy should provide the spark we need. There is an 85% probability that the benchmark will be at least 25 Bps lower by July.

The Rate Drop Is Coming

Consumers will get cheaper credit to buy new vehicles, and general economic growth due to a resilient economy, growth opportunities in AI and other segments, expanding services industry, and overall expansion should have a constructive effect.

Also, EVs could take over the global auto market (not just the car market) relatively soon. Many countries are phasing out ICE cars, and EVs are the only viable mainstream alternative.

Norway leads the way with only zero-emission new vehicles being sold from 2025. Britain, Israel, and Singapore plan to ban new ICE sales by 2030. China is by far the most significant EV market and car market globally. China has a leading program aimed at 20% zero-emission vehicles in 2025, and the majority of cars to be EVs by 2035.

While the U.S. is behind with a plan for 50% zero-emission cars by 2035, it doesn’t really matter because lithium demand should be stupendous by then.

Lithium Demand To Grow Exponentially

Demand for lithium could roughly quadruple in the next ten years. This dynamic implies that the major lithium miners and chemical producers should see rapidly increasing revenues and expanding profitability in future years. Furthermore, the effect could be exacerbated because lithium prices are dirt cheap right now.

Buy Low And Sell High

Lithium carbonate price has dropped to a level last seen around early 2021, which was before the massive EV run-up and all the hype. The price of lithium carbonate has now collapsed by approximately 87% from its high.

Do people believe EVs and other lithium-powered devices are going away? Of course not. There’s a temporary glut in the lithium market and a transitory slowdown in EV and other product demand.

Nonetheless, as the economy improves and rates ease, growth should return, leading to higher EV sales and increasing demand for lithium. Therefore, the glut will pass, and lithium prices will likely go much higher. The companies best positioned in this space should benefit immensely, and stockholders could get rewarded big time.

There Are Only A Few Big Players

One of the most significant factors associated with this investment is that there are only a few significant lithium players globally. The largest hard rock producer is a Chinese company, Tianqi Lithium. The most considerable company by market cap is Albemarle (ALB), which runs a very substantial and efficient global lithium mining operation. Ganfeng Lithium is another large Chinese player with excellent potential.

However, the three lithium stocks I want to talk about today are Sociedad Quimica y Minera de Chile (SQM), Arcadium Lithium (ALTM), and Lithium Americas Corp (LAC).

1. Sociedad – SQM is a chemical giant with offices in over 20 countries and customers in 110 nations. SQM has various lithium-related operations with revenues of around $7.7 billion in 2023.

SQM has a forward P/E ratio of about 6.5, going by 2025 consensus estimates. By the way, the consensus figures have been lowered due to the transitory oversupply and slowdown factors, implying they could be lowballed considerable now. SQM’s EPS will probably increase considerably in the future, with EPS estimates going up to around $13 in 2027. SQM’s current dividend yield is about 11.4%.

SQM Is Deeply Oversold

SQM is profoundly oversold and undervalued. This stock’s average price target on the street is nearly $70, about 57% above its recent price range. Moreover, estimates have been lowered dramatically during the downturn process and could soon start to increase. The higher-end price target is around 95%, implying a potential 115% gain in SQM stock in the next twelve months. Furthermore, downside appears limited, which is another positive to this excellent long-term play.

Technically, The Bottom Is Probably In

SQM has gone through a grueling bear market that’s taken about two years. However, we likely witnessed a long-term low of around $40, and the stock should begin climbing from here. The RSI went below 20 during the most recent capitulation-style selloff that suggested seller exhaustion and a likely bottom in SQM shares.

SQM 1-2 year target price range: $80-$120

2. Arcadium Lithium is the next company we need to discuss. Arcadium is a recent merger of equals Livent and Allkem. Mergers can be messy, especially during a downturn phase in an industry. While the two companies came to a merger of equals deal worth $10.6 billion, Arcadium’s market cap has been reduced to less than half (just $5 billion).

To put it in perspective, Arcadium trades at about 2.7 times forward sales expectations with 25-35% sales growth projections ahead. Also, higher-end estimates suggest Arcadium may be trading closer to two times 2025 sales.

Arcadium’s profitability potential is massive because the merger of equals brought together a top miner (Allkem), and a top global lithium processor (Livent). The new company’s vertically integrated business model should deliver exceptional sales and profitability growth results in the coming years.

From A Technical Standpoint – ALTM Is A Strong Buy

ALTM’s stock got decimated going into and after the merger. The economic downturn, high rates, a transitory slowdown in EV demand, and other temporary variables impacted the stock negatively. However, the meltdown effect was exacerbated by the post-merger panic-like selloff, which culminated in a capitulation-style bottom event. While we could continue seeing near-term volatility, ALTM should head much higher in the long term.

What Wall St. Thinks

ALTM is so oversold that its stock is lower than its lowest $5 12-month price target on the street. Moreover, the average price target is around $8.88, implying an 87% upside from here. I also think that estimates will get revised higher, and this stock could take off.

ALTM 1-2 year target price range: $10-$18

3. Lithium Americas Corp “LAC” is the most speculative lithium stock in my portfolio, but it also has the most outstanding potential, in my view. LAC is a small-cap ($700M) Canadian lithium miner developing the Thacker Pass mine in Nevada. The great significance is that Thacker Pass has the largest measured and indicated lithium deposits in North America.

At full capacity, the mine would produce 66,000 tons of lithium annually, equivalent to roughly 25% of 2021’s total global demand. General Motors (GM) invested $650 million in LAC to help it develop Thacker Pass, which should supply enough lithium to cover one million electric cars a year.

Meanwhile, LAC Has Been Decimated

Meanwhile, LAC is oversold and undervalued relative to its long-term potential and the endless revenues and profits it should see flowing in from Thacker Pass in future years. LAC’s RSI recently crashed below 30, illustrating capitulation-like seller exhaustion and a likely long-term bottom in the company’s shares.

LAC 1-2 year target price range: $12-$20

Buy The Bottom: Sell The Top Later

A wise investor once said, “You buy when there is blood in the streets.” Others have said to be greedy when others are fearful. I like the “market being a voting machine in the short term but being a weighing mechanism in the long run,” best described by one of the greatest investors in history, Benjamin Graham.

I bring up these sayings because they apply perfectly to the irrationally oversold state of the high-quality stocks in the lithium market. I believe the market appears to be looking very short-term here and is behind the curve.

The top companies in the lithium sectors are going through transitory slowdown periods due to temporary macroeconomic factors like soft demand due to high-interest rates and a sluggish economy.

However, the dynamic should change as the Fed moves closer to a more accessible monetary stance. Easier lending standards should enable more borrowers to purchase EVs and other lithium-ion products. Also, the supply glut is temporary, and we should see the market come to an equilibrium in future years.

While the recent economic atmosphere (last two years) has been challenging for lithium miners, many stocks have corrected by 50-75% or more. The upcoming environment should be much more favorable and is an excellent opportunity to get in on a multiyear rally from these ultra-depressed levels in the top lithium names. Therefore, I’ve been adding to positions in most major lithium miners around the recent lows and will continue to buy if the weakness continues.