Many investors these days want to add exposure to the burgeoning electric-vehicle industry, but finding the right option can be difficult.
A stock like electric-vehicle giant Tesla (TSLA) - Get Tesla Inc Report is one prospect, although after the stock’s monster rally and subsequent sharp pullback, it’s hard to justify adding the shares right now, given the potential for more volatility.
An underrated way to play the EV revolution is through lithium stocks, as this scarce metal is critical to manufacturing the batteries that power these cutting-edge cars.
Demand for EVs is sharp and all the major manufacturers are investing heavily to increase production. That translates directly to demand for the metal that powers their rechargeable batteries.
There’s also the worldwide focus on reducing carbon emissions to consider. Billions of dollars in funding from President Joe Biden’s bipartisan infrastructure bill will go to build a nationwide network of EV-charging stations.
And lithium-ion batteries power many of the most popular devices: cellphones, laptops and other portable consumer electronics.
According to Grandview Research, the global lithium market size was valued at $2.7 billion in 2020 and should grow at a compounded annual rate of 14.8% from 2021 to 2028.
All this taken together, investors might see a number of long-term lithium winners over the next few years.
Here are two of the top lithium stocks that could electrify your portfolio.
Chemicals producer Albemarle is the world’s largest lithium producer, providing a great way to gain exposure to this important resource.
The Charlotte company uses a process called solar evaporation to obtain lithium from its ponds in Salar de Atacama, Chile, and Silver Peak, Nevada. That's one of the most cost-effective ways to produce lithium.
Albemarle also has lithium hard rock mining assets in Australia and owns a 60% interest in Mineral Resources Ltd.'s Wodgina hard rock lithium mine project. That means the company has several potential ways to boost its production to keep up with increasing demand.
The company recently unveiled an agreement to acquire Guangxi Tianyuan New Energy Materials, which includes a lithium conversion plant, and agreements for strategic investment in China to build two new lithium hydroxide conversion plants.
This is a big deal given how China has an even larger EV market than the U.S. does.
Albemarle recently reported Q3 earnings that surpassed consensus estimates. Particularly noteworthy is that the beat was driven by strong results from the company’s lithium segment, which saw net sales jump more than 35% from a year earlier.
The company also boosted its full-year outlook, which suggests that Albemarle’s management expects lithium prices to remain strong in the near term.
Lithium's distinctive properties enable energy density, which essentially means that it can pack a lot of power into a small space. That’s a big reason that it’s critical for EV batteries as well as many of the most popular consumer electronics.
But lithium is found in only certain areas, like Bolivia, Chile, and Argentina.
A company that has resources in these areas is worth a look, and a pure-play lithium producer like Livent fits the bill.
Livent’s Salar del Hombre Muerto lithium carbonate resource in Argentina provides the company with a distinct competitive advantage, while lithium hydroxide conversion plants in the U.S. and China help the company attract high-profile buyers.
The stock has rallied more than 67% in 2021 to date and is hitting highs even after an earnings miss, which indicates investors still have appetite for the shares.
It’s worth noting that Livent’s Q3 earnings report wasn’t all bad, as the company delivered top-line growth of 43% year-over-year to $103.6 million and boosted its forward guidance.
Livent might be a buy-the-dip candidate in coming weeks.