The future is electric and expensive
As the world scrambles to find a solution to fossil fuels amid the Russia-Ukraine conflict, the demand for lithium stocks ties to an unexpected connection.
Although Ukraine is known as the breadbasket of Europe, it may play an important role for the future of advanced societies. As the New York Times stated not too long ago, before war broke out, foreign investors were lining up to develop Ukraine’s potentially vast and untapped supply of lithium. Possibly, the country could be one of the biggest suppliers of the metal, which would carry a significant impact for lithium stocks.
Of course, with the Russian invasion, the threat is that countries who don’t share western standards and morals could control the future of transportation. Lithium of course is the core commodity that goes into electric vehicle powerplants. Under this context, the sanctions that the U.S. and its allies imposed on Russia present a double-edged sword that may benefit lithium stocks.
On one hand, harsh sanctions may wallop Russia’s less-diversified economy, bringing it back to the negotiating table. But on the other hand, Russia being one of the biggest powers in fossil fuel distribution could make life difficult for the international community. An obvious solution is to switch from hydrocarbons to electric-powered vehicles but the transition itself will be challenging. Further, heightened demand should boost the profile of lithium stocks.
Naturally, the concept of betting on the next big commodity is a risky and cynical venture. However, with little signs of tensions easing in eastern Europe combined with unrelenting inflation, consumers may demand wholesale changes. If so, the below lithium stocks could benefit handsomely.
- Sociedad Quimica y Minera de Chile (NYSE:SQM)
- Albemarle (NYSE:ALB)
- Lithium Americas (NYSE:LAC)
- Livent (NYSE:LTHM)
- Panasonic (OTCMKTS:PCRFY)
- Standard Lithium (NYSEAMERICAN:SLI)
- American Lithium (OTCMKTS:LIACF)
While jumping aboard lithium stocks seems a reasonable solution to the present geopolitical flashpoint, you should be aware that the move to EVs may be substituting one dependency for another. As the U.S. Geological Survey revealed, China dominates production of graphite, which is essential for EV manufacturing. Therefore, always conduct your due diligence, even for supposedly “no-brainer” ideas.
Sociedad Quimica y Minera de Chile (SQM)
While Sociedad Quimica y Minera de Chile may not be the biggest household name in the U.S. — especially among Americans who don’t actively manage their investment portfolios — that could change over the next several years. One of the powerhouses among lithium stocks, SQM facilitated attractive exposure to the EV rollout.
For one thing, despite the adage stating that EVs are the future, it’s difficult to know which brand would occupy top honors. This assessment will become even more challenging as competitors — both EV upstarts and legacy automobile manufacturers — put their hats in the ring. With SQM, you’re selling tickets to the game, not wagering on which team will win, thus making it an ideal play among lithium stocks.
More importantly, SQM’s home market of Chile represents one of the leading players in the lithium-production industry. In fact, it’s second only to Australia. Also critical is that Chile is relatively geographically close to the U.S. and is one of our strongest partners in Latin America.
With frayed relations sadly becoming the norm, this geopolitical stability may command a small premium.
Suddenly a complex story among lithium stocks, Albemarle on the surface should be an easy-to-digest idea. A global specialty chemicals firm, Albemarle has long been a relevant industrial play as evidenced by its wide international footprint.
However, its ties to the lithium sector have made ALB quite enticing, again for investors seeking an EV trade that wasn’t overly exposed to consumer sentiment (as would be the case for picking an individual EV brand). So, both buyers and analysts had high hopes for Albemarle, which makes its underperformance all the more startling.
On a year-to-date basis, ALB is down 16%. Although Albemarle “raised its 2022 outlook for earnings per share to a range of $5.65 to $6.65,” per a Bloomberg report, analysts regarded the guidance as low due to the soaring lithium spot price. With other lithium stocks responding well to bullish sentiment, ALB’s pessimism presented a red flag.
Still, if the war in eastern Europe drags on, ALB may eventually find its way northward. It’s worth at least keeping on your radar.
Lithium Americas (LAC)
Another popular idea among lithium stocks to buy, Lithium Americas nevertheless has the same issue as Albemarle (though not quite to the equivalent magnitude): a poor YTD performance. Since the January opener, LAC is down 12.5%, which again is a bit of a distraction when the underlying metal is in high demand.
Still, if you’re willing to stomach the possibility of choppiness and volatility, LAC could work out for you. True, the red ink since the tail end of November last year isn’t pretty. Back then, shares were trading hands briefly above $40. Now, it’s in the high-$20 range. Nevertheless, the price action has settled down over the trailing month, which may imply a resolution to the upside.
Now, I don’t think any one interpretation of the tea leaves should be the basis of your entry point. However, with the national average gasoline price hitting $4.33 per gallon as of this writing, it seems that LAC would enjoy upside momentum. After all, de-leveraging from dependencies on potentially unstable countries is one of the biggest lessons to learn from the geopolitical flashpoint — and LAC could be a part of the solution.
Another one of the lithium stocks that hasn’t gotten off to the best start for 2022, Livent shares are down a bit over 3% on a YTD basis. However, a baseline of horizontal supports stands at around the $18 level. So long as LTHM doesn’t break beneath this threshold, I wouldn’t get too discouraged about its chances.
Fundamentally, Livent is a chemical manufacturing company focused on “harnessing lithium’s potential to change the energy landscape.” While the narrative might have sounded like a hokey marketing pitch prior to the Russian invasion of Ukraine, with this devastating paradigm shift, Livent’s long-term profile should command a viable upside pathway.
Although the U.S. hardly imports any crude oil from Russia, the shelving of a major global oil producer inherently reduces overall supply. With demand still sky-high, however, prices have nowhere to go but up. Also, the sanctions that western countries imposed on Russia disrupt established energy transportation networks, making the supply chain of fossil fuels that much more expensive.
To get around this, lithium and its direct relationship with EVs could be pivotal; thus, the speculative case for LTHM.
Although not one of the pure-play lithium stocks to buy, Panasonic is an intriguing idea for those that want broad exposure to the critical metal. As you might know, Panasonic has a longstanding relationship with EV king Tesla (NASDAQ:TSLA). Indeed, much of the success that the EV maker enjoys can be tied to the consumer electronics firm’s acumen in building reliable, high-capacity lithium-ion battery packs.
Further, the partnership between Panasonic and Tesla shows no sign of slowing down. And since Tesla enjoys significant clout in the EV sector, one that also isn’t diminishing as of yet, I don’t see a need to fix what isn’t broken. In other words, what’s good for Tesla appears to be good for Panasonic.
Moving forward, Panasonic can leverage its massive knowledge base in developing advanced lithium-ion batteries for other pursuits that could be relevant as the transportation paradigm may change. As well, being a diversified electronics firm, Panasonic isn’t limited to any one business unit, which could come in handy should the global economy react in unpredictable fashion.
Standard Lithium (SLI)
Given that lithium stocks represent a relatively young market compared to other commodity plays, you’re going to have plenty of opportunities for highly speculative trades, if that’s your thing. However, I must warn you that companies like Standard Lithium are incredibly risky. So please, exercise serious discretion before proceeding.
According to Standard Lithium’s website, the company seeks to leverage the existing infrastructure of the largest brine (saline groundwater rich with dissolved lithium) processing facilities in North America. Theoretically, this process should lead to faster lithium production and greater cost effectiveness. Standard Lithium’s flagship project is located in southern Arkansas, which features a brine-rich environment.
On paper, the concept of SLI sounds enticing. By maximizing lithium resources and processing right here at home, the business could ultimately contribute to true energy independence. However, there’s one little problem: Standard Lithium hasn’t generated revenue since 2011.
Stated another way, SLI stock is an aspirational idea. Don’t get me wrong — there’s nothing wrong per say with being aspirational. However, in this shaky market ecosystem, a lack of fiscal substance can scare off investors.
American Lithium (LIACF)
Since I’m well aware that strong demand exists for high-risk, high-reward ideas, I’m going to oblige by including American Lithium as the caboose for this story of lithium stocks. However, it’s one heck of a risk, so again, please exercise extreme caution if you’re thinking about LIACF.
Per its website, management is focused on developing world-class lithium projects in the Americas. From a bird’s-eye-view, it’s an interesting pitch because the geopolitical flashpoint in eastern Europe has turned off many world leaders from fossil-fuel dependency. Therefore, lithium projects tied to stable countries present an attractive profile.
Also, American Lithium owns one of the largest undeveloped uranium projects globally. While it’s true that nuclear power is incredibly controversial, it’s also relevant because it provides another escape route from energy dependencies.
Those are the positive factors for LIACF stock. The not-so-great component comes in the reality that American Lithium is aspirational. As a pre-revenue company, it needs constant investments to stay afloat. Of course, you can be rewarded handsomely if LIACF hits it big. But the chances of that happening is probably minimal.
This article originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto 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.