Some of the best battery stocks remain at attractive investment theme through the decade. Last year, the demand for automotive lithium-ion batteries increased by 65% on a year-on-year basis to 550GWh. With global EV adoption still at an early stage, demand is likely to remain robust. Even amidst competition, some of the top battery players are likely to grow at a healthy pace.
With growth in demand for batteries, there is continued focus on innovation. One area that holds immense promise is the potential commercialization of solid-state batteries in the coming years. Another related investment theme is the surging demand for critical materials. This includes lithium, cobalt, and nickel.
This column discusses three battery stocks from these segments that are best positioned to create value. I believe that these stocks are likely to surge in the near term besides the positive long-term outlook.
Let’s discuss the reasons to be bullish on these battery stocks that promise multibagger returns.
Panasonic Holdings (PCRFY)
It’s been a good year for Panasonic Holdings (OTCMKTS:PCRFY) stock with an upside of 41%. However, the stock remains significantly undervalued at a forward price-earnings ratio of 10.8. Additionally, the stock offers a dividend yield of 1.82%. I believe that PCRFY stock is likely to remain in an uptrend considering the business developments.
It seems clear that Panasonic is in an aggressive investment mode. The company has one battery plant in the U.S. and the construction of the second plant has commenced. Additionally, the company is contemplating a third plant in Oklahoma.
In November 2022, it was reported that Panasonic and Toyota Motors (NYSE:TM) are looking to build a battery plant in Japan. With aggressive investments coupled with focus on innovation, Panasonic is likely to gain market share in the coming years.
On the innovation front, Panasonic is targeting an increase in battery energy density by a fifth by 2030. The company also has several patents in the solid-state battery space.
Solid Power (SLDP)
Among emerging names in the battery stocks space, Solid Power (NASDAQ:SLDP) is worth considering. The company is working towards the commercialization of solid-state batteries and the stock looks undervalued.
An important point to note is that solid-state battery commercialization is unlikely before 2026. However, I believe that there are several positive catalysts. Further, the best time to buy is when the technology is not commercialized. It’s a high-risk investment, but returns can be 10x or 20x if the company is successful.
In 2023, Solid Power plans to deliver EV cells to automotive partners for validation testing. Positive news on that front can send SLDP stock skyrocketing. It’s also worth mentioning that the company has licensed its cell design and manufacturing technology to BMW (OTCMKTS:BMWYY). This will allow parallel research and potentially accelerate the commercialization.
From a financial perspective, Solid Power reported cash and equivalents of $468 million as of Q1 2023. There is ample financial flexibility to invest in research and development. The backing of Ford (NYSE:F) and BMW is an added advantage from a funding perspective.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) is the top pick among lithium stocks. At a forward price-earnings ratio of 9.8, the stock looks undervalued.
It’s worth noting that lithium producers opine that global supplies are unlikely to be enough to meet the EV demand. I expect lithium to remain in an uptrend and Albemarle is positioned to benefit.
Even with some correction in lithium prices, Albemarle expects to deliver revenue growth in the range of 35% to 55% for 2023. This will be associated with upside in cash flows.
Additionally, the company has guided for 20% to 30% annual growth in lithium sales volume through 2027. This will ensure revenue growth remains robust. Higher price realization in the coming years will be an added benefit.
As of March, the company reported net-debt to EBITDA of 0.4. With high financial flexibility, there is ample headroom for aggressive expansion. I therefore expect ALB stock to trend higher from the current valuation gap.
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.
