After a big rally in 2022, lithium has been in a correction mode. This does not come as a surprise to many investors, as profit-taking coupled with supply growth providing plenty of fodder for the recent correction. Accordingly, as lithium prices have declined, so too have the stock prices of some of the top lithium stocks. That said, I remain bullish on the long-term fundamentals for the lithium market. It’s therefore a good time to look at some of the best lithium stocks to buy after a correction.
Looking at the fundamentals for lithium producers, I see a lot of upside. That’s mainly because I expect prices to remain in an uptrend over the next decade. To put things into perspective, the lithium lithium supply gap “is projected to be acute — at least 1.1 million metric tons, or 24% less than demand.” Clearly, the outlook for lithium demand is bullish, when one considers the increasing adoption of electric vehicles globally.
Therefore, I believe that some of the top lithium stocks can be accumulated over an investment horizon of five years. Let’s discuss three of the best lithium stocks to buy after a correction.
| ALB | Albermarle | $216.07 |
| LAC | Lithium Americas | $22.45 |
| PLL | Piedmont Lithium | $57.77 |
Albemarle (ALB)
Albemarle (NYSE:ALB) is among the top lithium stocks to buy right now. Over the last six months, ALB stock has declined by 27%. The stock looks attractive at a forward price-earnings ratio of 9.2-times. Additionally, ALB stock is also among the best dividend growth stocks to consider.
It’s worth noting that Albemarle has already revised its revenue growth guidance for 2023. However, the downward revision on the back of falling lithium prices has already been discounted in the stock. Even with the revised guidance, Albemarle expects revenue growth in the range of 35% to 55%.
If we look beyond current headwinds, ALB stock is positioned to create value over the next five years. The company’s lithium conversion capacity was 85ktpa in 2019. Last year, the company expanded capacity to 200ktpa. Lithium conversion capacity is further expected to increase to 550ktpa by 2027.
Once lithium starts trending higher, capacity growth will translate into robust cash flows for Albermarle investors.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is another massively-undervalued lithium stock to buy. Once the company’s assets begin production, there is ample headroom for value creation.
To put things into perspective, the company’s Thacker Pass mine has an after-tax net present value of $4.95 billion. Currently, Lithium Americas trades at a valuation of roughly $3.5 billion. Additionally, the company has 44.8% stake in Cauchari-Olaroz asset in Argentina. The asset is expected to have a project life of 40 years and deliver an average annual EBITDA of $308 million.
Earlier this month, Lithium Americas approved an agreement for separation into two lithium companies, Lithium Americas, and Lithium Argentina. This is likely to unlock value in the coming years.
It’s also worth noting that General Motors (NYSE:GM) infused $650 million into the company to help spare the development of the Thacker Pass project. Therefore, financing for major investments that are nearing commercialization is unlikely to be a challenge.
Piedmont Lithium (PLL)
Considering its asset base, Piedmont Lithium (NASDAQ:PLL) is also among the top lithium stocks to consider buying after this recent dip. Over the past year, PLL stock has been sideways. However, a breakout to the upside seems imminent.
As an overview, Piedmont has a 100% ownership stake in assets in Tennessee and Carolina. These assets have a combined after-tax net present value of $4.5 billion. Additionally, the company has 25% and 50% ownership in assets in Quebec and Ghana respectively. Based on these stakes, these assets have an after-tax NPV of $1 billion.
While the consolidated NPV of Piedmont’s assets is $5.5 billion, Piedmont stock has a current market valuation of around $1.1 billion. It’s worth noting that first production has already been achieved from the company’s Quebec asset. While other assets are few years away from commercial production, PLL stock is likely to trend higher if the construction progresses in-sync with the company’s timeline.
On the date of publication, Faisal Humayun did not hold (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.
