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Lithium stocks are having their day in the sun.
This comes amid renewed focus on lithium as many countries shift to more environmentally friendly policies – including a transition toward electric vehicles and away from gas-burning internal combustion engines.
In the U.S., for instance, President Joe Biden last August signed an executive order requiring half of all new vehicles sold domestically to be electric by 2030.
This increase in demand is creating a boon for lithium stocks, but a headache for automakers. In order to power these EVs, the industry needs batteries, and lots of them. And as demand for electric vehicles spikes, so has the price of lithium – a critical element used in lithium-ion batteries that power the emissions-free vehicles. An estimate from data provider Benchmark Mineral Intelligence indicates the price of lithium is up by around 130% this year.
Sky-high lithium prices have garnered a lot of media attention, with Tesla (TSLA) CEO Elon Musk recently joining in on the debate. "Price of lithium has gone to insane levels! Tesla might actually have to get into the mining & refining directly at scale, unless costs improve," Musk tweeted in early April. He added that there's no shortage in lithium, but that the extraction and refinement process is "too slow."
In an aim to boost the battery supply chain in the U.S. – which will account for only 7% of global battery production this year, according to the Benchmark Mineral's Lithium-ion Battery Database – the Biden administration announced $3.16 billion of funding to companies that manufacture and recycle lithium-ion batteries domestically.
The president also issued another executive order invoking the 1950 Defense Production Act to increase mining of "the strategic and critical materials necessary for the clean energy transition – such as lithium, nickel, cobalt, graphite, and manganese for large-capacity batteries."
While efforts are being made to boost the supply chain, prices for the metal should stay elevated for the time being. This is good news for those looking to gain exposure to lithium investments.
Using the TipRanks database, we have compiled a list of five lithium stocks that are well-liked by their covering analysts. The field for lithium stocks is admittedly small, but each name featured here boasts a Moderate Buy or Strong Buy rating from Wall Street's pros and offers upside potential from current levels based on consensus price targets.
Data is as of May 8. TipRanks consensus price targets and ratings are based on analyst opinions issued over the past three months. Stocks listed in reverse order of consensus rating, and then 12-month price targets.
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Sociedad Química y Minera de Chile (SQM, $78.87) is a chemical company headquartered in Santiago, Chile, that supplies iodine, lithium, industrial chemicals and plant nutrients. The company develops its products from "caliche ore and brines extracted from mineral resources located in northern Chile in the Antofagasta and Tarapacá regions."
When it comes to lithium, the company expects to produce 180 metric tonnes of lithium carbonate in 2023.
SQM is expected to announce its first-quarter results on May 18. Deutsche Bank analyst Corinne Blanchard expects that the pricing of lithium is likely to be a key topic on the company's Q1 earnings call. The analyst anticipates the materials stock will benefit from a "flexible approach [when it comes to lithium pricing], with around 50% of its contracts indexed on monthly benchmarks, 20% based on (remaining) multi-year fixed-price contracts, and the remaining 30% of the volumes on 'spot'."
Blanchard expects that in the first quarter, lithium pricing likely approached around $25,000 per tonne for SQM, and this could be the main catalyst to drive EBITDA (earnings before interest, taxes, depreciation and amortization) to $722 million. By the analyst's estimate, for every $1,000 per tonne increase in the price of lithium, the company's EBITDA is likely to change by $20 million every quarter.
As a result, the analyst is bullish on SQM's "growth trajectory for this year" with a "flexible lithium pricing mechanism" that could benefit from higher lithium prices. "In non-lithium divisions, improving pricing is also occurring, especially in potassium, iodine and SPN [sodium potassium nitrates]," she adds.
When it comes to lithium stocks, analysts are bullish on this one. Blanchard, for example, has a Buy rating on SQM, with a price target of $98 – near the Street-high price target of $100. The analyst's price target implies an upside potential of 22.9% from current levels.
Three of five analysts surveyed by TipRanks categorize SQM stock as a Buy. Hear what else the pros have to say about SQM on TipRanks.
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Albemarle (ALB, $242.41) is a specialty chemicals company headquartered in Charlotte, North Carolina. ALB has three business divisions, including lithium, bromite specialties and refining catalysts.
The company announced its first-quarter results in early May, with net sales that soared 36% year-over-year to $1.1 billion.
Adjusted EBITDA jumped 88% year-over-year to $432 million, while adjusted earnings came in at $2.38 per share, an increase of 116% over Q1 2021.
The rising prices of lithium and bromine resulted in Albemarle updating its fiscal 2022 outlook. It now expects net sales to jump between 60% and 70% year-over-year and be in the range of $5.2 billion to $5.6 billion. Adjusted EBITDA is now projected to arrive between $1.7 billion and $2 billion – a significant increase over the $871 million it reported in fiscal 2021.
"Many of the end markets we serve are critical for transitioning to greener energy and advancing electrification and digitalization," Albemarle CEO Kent Masters said in the company's Q1 press release. "Our ongoing investments capitalize on the rapid growth and strong pricing trends in these markets."
These upbeat results are one of the reasons Deutsche Bank analyst David Begleiter thinks ALB is a solid pick among lithium stocks.The analyst points out that ALB has "two new world-scale lithium projects [in Australia] starting up in 2022 and the largest, most diverse lithium resource base in the world that provides more 'shots on goal' than any other lithium company."
As a result, Begleiter believes that Albemarle is well-positioned to capitalize on the 33% compound growth in lithium demand over the next several years and has a price target of $290 on the stock.
Out of 14 analysts covering ALB in the past three months, eight are bullish on the stock. Check out Wall Street's average, highest and lowest price targets for ALB on TipRanks.
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Lithium Americas (LAC, $24.55) is a mining company that is progressing its lithium projects in Argentina and the U.S. toward production.
In Argentina, LAC's Caucharí-Olaroz will be the biggest new brine operation in more than two decades, while Pastos Grandes will result in regional growth.
Meanwhile, the company's Thacker Pass operation in Nevada is the largest-known lithium resource in the U.S. According to LAC, the development "has received its Record of Decision from the Bureau of Land Management and is advancing towards construction."
Deutsche Bank analyst Corinne Blanchard is positive about quite a few upcoming catalysts for the lithium investment. This includes production at LAC's Caucharí-Olaroz mine, which is expected to start later this year. There's also the ruling over an appeal to the Record of Decision filed in a federal court that is expected to come in Q3 2022.
The analyst anticipates that a "positive ruling would allow the company to further explore strategic partnerships and construction to potentially start early 2023." Blanchard also favors the potential separation of LAC's assets in the U.S. and Argentina, as well as the expansion of its footprint in Pastos Grandes.
In addition, Lithium Americas in late April made a strategic equity investment of $10 million in Green Technology Metals, a lithium development and exploration company with hard rock spodumene assets in Ontario.
Keeping in view these catalysts, Blanchard recently reiterated a Buy rating on the lithium stock and bumped up her price target to $40 from $34. The analyst's price target is near the highest price target of $42 on Wall Street.
Most of the pros following LAC are in the bull camp, according to TipRanks. Of the seven analysts who have sounded off on LAC stock over the past three months, five say it's a Buy. TipRanks offers a full analyst rundown of LAC shares.
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Allkem (OROCF, $8.30) is a specialty lithium chemicals company headquartered in Buenos Aires, Argentina. The company's business portfolio includes its Olaroz lithium brine and other borax operations in Argentina, Mt. Cattlin – its hard-rock lithium operation in Australia – and its lithium hydroxide conversion facility in Naraha, Japan.
OROCF has plans to ramp up its lithium production threefold by 2026 and intends to maintain its 10% share of the lithium market trade on a global basis over the next 10 years.
The company's solid growth prospects were in full view in its March business update, where Allkem said its mineral resource at Olaroz was upgraded 2.5 times to 16.2 Mt lithium carbonate equivalent (LCE) from the 6.4 million tonnes (Mt) it reported in its fiscal first-half 2022 update in February. "Allkem resources at the Olaroz and immediately adjacent Cauchari basins are now 22.5 Mt LCE in all resource categories, making it one of the largest lithium resources in the world," the company said in the press release.
Considering the business portfolio for Allkem, J.P. Morgan Securities analyst Al Harvey thinks the company is well-poised to "capitalize on the growing electrification thematic" as it operates across "all three key lithium chemicals."
Moreover, Allkem's growth pipeline is "full," with production more than doubling up at Olaroz. And its "greenfield brine project Sal de Vida in Argentina and James Bay Spodumene project in Canada offer additional medium-term growth," Harvey adds.
As the demand for lithium continues to ramp up and cause higher prices, analysts maintain their belief that OROCF is one of the best lithium stocks out there. This is evidenced in the consensus Strong Buy rating and $11.30 price target, representing implied upside of more than 46%. See the full rundown of analyst ratings for OROCF on TipRanks.
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Pilbara Minerals (PILBF, $1.88) is a pure play as far as lithium stocks go. The company owns Pilgangoora Lithium-Tantalum Project, the world's largest hard-rock, lithium operation. The project is located in Western Australia's Pilbara region, and produces a spodumene and tantalite concentrate that is used to make electric vehicle batteries.
The company recently gave its business update for its March quarter. Over the three-month period, PILBF's unit operating cost came in at $458 per dry metric tonne (dmt) for the shipping of 50,418 dmt of lithium concentrate shipped from its Pilgan operation. These costs were higher than what the company guided for in February due to lower rates of production, higher fuel prices, and "operations significantly affected by manning shortfalls, principally attributable to COVID-19 community transmission," Pilbara stated in its press release.
Pilbara expects unit operating costs to decline in the June quarter amid improved production levels at its Pilgan operation and an expanding workforce.
The March quarter unit operating costs came in 9% below J.P. Morgan Securities analyst Al Harvey's forecast. The analyst is positive about the reduction in unit operating costs for Pilbara going forward, as well as its expansion projects and a downstream joint venture with POSCO.
As a result, Harvey is optimistic toward Pilbara, with an Overweight (Buy) rating. He's in good company too. PILBF is the second of the Strong Buy-rated lithium stocks featured here, with a consensus price target of $2.76, representing implied upside of nearly 47% to current levels. Check out other analysts' price targets and analysis for PILBF at TipRanks.
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