Lithium has been duking it out with cobalt and nickel to be the metal of choice in the global electric vehicle battery market, and things may come to a head in the second quarter of 2024.
The metals’ prices have come down, triggering a tumble in lithium stocks. Lithium stocks have been on the rise in recent years as EV makers prize the metal as the go-to source for EV battery production, but have faltered lately due to weakening EV demand.
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“Despite the significant downside in battery metals’ prices, with nickel, lithium and cobalt prices down 60%, 80% and 65% from cycle peak, respectively, we believe it is too early to call a decisive end to these respective bear markets,” Goldman Sachs said in a recent research note.
Goldman noted that electric vehicle sales “have hit a speed bump” among EV manufacturers’ profitability angst. “But even as our analysts lower their near-term sales forecasts, falling battery prices are expected to boost EV sales eventually,” Goldman stated.
BloombergNEF projects overall growth of 22% in the global EV market in 2024. Although it expects a 12-percentage-point slowdown in the EV sales growth rate this year, its forecast calls for steady increases in 2025 and 2026.
The global EV battery market is expected to expand at a compound annual growth rate of 19% for the next decade, and this year is poised to be a robust one for lithium-ion batteries, which are expected to compose 63% of the global market, according to a recent report by Fact.MR, a market research and consulting firm.
Meanwhile, the decline in lithium prices spurred a surge in lithium hydroxide futures trading in the first quarter on the exchange run by CME Group Inc., hitting a record high that nearly surpassed the transactions for full-year 2023, according to a Bloomberg report on April 2.
What does all this mean for lithium stocks going forward? Falling prices and lower manufacturing demand usually spell trouble for investable commodities, but lithium could be an exception, especially in the long term. Look to these five stocks and the benchmark exchange-traded fund to play the lithium market until demand swings upward in 2025 and 2026:
| LITHIUM STOCK/ETF | YTD RETURN AS OF APRIL 2 |
| Albemarle Corp. (ticker: ALB) | -12.2% |
| Mineral Resources Ltd. (OTC: MALRY) | -5.6% |
| Arcadium Lithium PLC (ALTM) | -44.6% |
| Lithium Americas Corp. (LAC) | 10.2% |
| Tesla Inc. (TSLA) | -32.9% |
| Global X Lithium & Battery Tech ETF (LIT) | -11% |
Albemarle Corp. (ALB)
Charlotte, North Carolina-based Albemarle continues its downward slide, with the stock down 12.2% on a year-to-date basis, slightly worse than the benchmark Global X Lithium & Battery Tech ETF, down 11% so far this year.
Yet the firm’s long-lasting roots (it’s been around since 1887) should bolster ALB in its short-term need. The company has returned more than 1,030% since 2004, compared with 356% for the S&P 500.
Wall Street analysts seem to be singing that same tune. Albemarle is currently trading at $126.48 per share as of the April 2 market close, and Oppenheimer analyst Colin Rusch has slapped an “outperform” call on the stock with a target price of $188. Meanwhile, Loop Capital has a “buy” rating on ALB with a target price of $162 per share.
Demand downturns don’t last forever in the commodities sector, and Albemarle should be one of the linchpin lithium stocks left standing when the pricing decline is over. The well-managed company is a healthy bet for the long haul, especially with a 1.3% dividend yield to tide investors over.
Mineral Resources Ltd. (OTC: MALRY)
This Perth, Australia-based mining and processing mineral properties company is also one of the lithium market’s dividend bets. Its solid 1.2% yield may be enough to attract income-minded investors.
The firm also excels at a core sector focus: mining and processing mineral properties, particularly mining services, iron ore and lithium. The company also provides mineral crushing, screening, construction engineering and operational services in mineral-rich Western Australia.
The company has a profitable partnership with Albemarle that pays Mineral $380 million to $400 million to expand its partnership in the Wodgina lithium mine in Australia to 50% from 40%, with Mineral Resources owning the remaining 50%. The mine is one of the largest known hard-rock lithium deposits in the world and has an estimated mine life of 30 years or more, giving Mineral a long runway to capitalize on the worldwide demand for lithium.
Mineral Resources also owns half of the Mt. Marion lithium operation in Western Australia, alongside China-based Ganfeng Lithium Group Co. Ltd. (OTC: GNENF), one of the largest lithium mining companies in the world.
The company suffered a 42% slide in underlying first-half fiscal 2024 net profit, which isn’t good for a young company (founded in 2006) looking for long-term stability. Still, mining and iron ore operations are highly volatile, and some significant performance fluctuations are to be expected.
For now, consider MALRY for the nice dividend and solid long-term prospects in the lithium market.
Arcadium Lithium PLC (ALTM)
Formerly known as Livent and now called Arcadium Lithium after Livent’s January all-stock merger with Allkem, this pure-play lithium producer may need some time to get its act together as the new partnership develops and lithium prices continue to fall.
That time could be coming soon.
The stock is selling cheaply, at $4.14 as of April 2, less than half the $9 price target recently rolled out by Loop Capital. Its recent fourth-quarter numbers were encouraging, with earnings per share of 34 cents, easily surpassing analyst estimates of 11 cents.
On the downside, the stock has shed about 20% in the last month amidst the lithium price fallout. However, as CEO Paul Graves says, the recent merger links two “highly complementary” organizations that will “continue to grow as one of the leading producers of lithium chemicals globally.”
Arcadium also holds 7% of the lithium industry market share, and it should benefit from Livent’s previously inked deal with General Motors Co. (GM) to deliver lithium hydroxide starting in 2025.
Lithium Americas Corp. (LAC)
Vancouver, Canada-based Lithium Americas is experiencing a reversal of fortune in the spring of 2024. Its share price has exploded in the past month, rising 25%.
Much is riding, however, on the success of LAC’s major stake in Thacker Pass, one of the largest lithium resources in the U.S. Thacker Pass has a mining capacity of up to 40 metric tons of lithium, and the area is currently valued at about $5.7 billion, compared with LAC’s current market valuation of $1.1 billion. Thacker Pass is also fully permitted and comes with a 40-year mine life, giving lithium investors a domestically qualified long-term investment when the EV market rebounds.
Lithium Americas has partnered with General Motors, which has invested $650 million in its Thacker Pass endeavor. The U.S. Department of Energy is also funding Lithium Americas with a $2.3 billion loan for its Thacker Pass mining initiative, giving Lithium Americas two powerful funding partners going forward and loads of cash to get the job done.
Tesla Inc. (TSLA)
Tesla shares are down 59.3% from their 2021 all-time highs, when TSLA traded up to $409 per share, as chatter about an EV market collapse has bubbled on Wall Street.
Instead of buying the hype, you may be better off buying Tesla instead. The company is still king of the hill in the EV manufacturing market, and that reality isn’t changing anytime soon. Just ask a proud Tesla owner or Kelley Blue Book, which named Tesla as its 2023 brand of the year among luxury options.
Although it’s not a pure-play lithium stock, the company builds its own battery packs and aluminum chassis and has a huge influence in the EV battery market. Tesla also understands how to build a steady customer base that may stick with the company for life. It offers entry-level models for EV newbies starting at $25,000, while more well-heeled buyers are on to their second or third Tesla, likely in the $70,000 to $100,000 range.
Tesla also has plenty of cash on hand, ending 2023 with $4.4 billion in free cash flow. That’s a nice pocket ace, allowing Tesla to undercut EV competitors like Ford Motor Co. (F) and GM on price while avoiding the headache of mass marketing gas-powered vehicles.
At a share price of $166.63 as of the market close on April 2, TSLA stock looks like a “buy the dip” opportunity to many investors now.
Global X Lithium & Battery Tech ETF (LIT)
If you’re gun-shy over steering portfolio cash into a defensive lithium EV market right now, you can play it safe for the moment and curb your risk with a sector investment. That’s where the Global X Lithium & Battery Tech ETF comes in.
While the fund is down about 11% in 2024, LIT has significant positions in industry heavyweights, where stakeholders want to be. That list includes Albemarle (9.7% of its portfolio), Mineral Resources (5.2%) and Pilbara Minerals Ltd. (OTC: PILBF) (4.8%). These companies, among many others, have benefited from the billions in funding freed up by the recently enacted CHIPS and Science Act and the Inflation Reduction Act.
ETFs like LIT can diversify assets across different parts of the lithium supply chain, which can provide a cushion against price volatility. For example, if prices fall, that’s a negative for producers but a positive for companies that buy lithium to make value-added products.
Also, falling lithium prices and sector ETFs have an interesting relationship history.
In 2018, lithium prices slid significantly due to low demand, and LIT finished the year down 29% with a share price of roughly $25. The EV market picked up steam in the next two years, and by the end of 2020 LIT’s price had risen to about $61.
Given that the lithium and EV markets have matured over the past five years, sector companies have a better grip on their finances and operations, and global governments are also solidly in the EV business, it’s reasonable to assume a big rebound is on the way. That should give LIT a big boost.
LIT has an expense ratio of 0.75%, but it also has a trailing-12-month yield of 1.2%.
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6 Best Lithium Stocks and ETFs to Buy in 2024 originally appeared on usnews.com
Update 04/03/24: This story was previously published at an earlier date and has been updated with new information.
