The lithium battery market has grown rapidly in recent years, driven by increased demand for clean energy and transportation. In fact, the global battery market is predicted to reach $406.1 billion by 2023, but that has not stopped certain macro developments from dampening lithium prices. An oversupply of the rare earth mineral has led to prices reaching new lows in 2023. As a result, a number of lithium stocks have been battered. For investors desiring to profit from the battery markets’ long-term prospects, their best bet may be to start considering these three lithium stocks.
Albemarle Corporation (ALB)
Albemarle (NYSE:ALB) is a specialty chemicals company operating three primary business segments: lithium, bromine and catalysts. However, Albemarle’s lithium business, which extracts and processes both lithium carbonate and lithium hydroxide, is what the specialty chemicals company is best known for.
In 2022, the company primarily produced lithium at its brine operations in the Atacama salt flat in Chile and its hard rock mines in Australia. Albemarle made more than $7 billion in revenue last year due to elevated lithium prices. In 2023, the lithium producer has continued to deliver stellar results with two quarterly earnings beats.
Unfortunately, ALB shares have fallen 36.0% since the start of the year mostly due to investors’ pessimistic sentiments about where lithium prices are headed. Given where the stock is trading now, it is quite possible ALB could be oversold, especially if lithium prices start to rebound. Albemarle’s management also decided to raise guidance and noted tailwinds in electric vehicle (EV) sales that should drive lithium prices upward. Potential investors should be interested.
Ganfeng Lithium Group (GNENF)
Ganfeng Lithium Group (OTCMKTS:GNENF) is a China-based company that is one of the world’s largest producers of lithium products. The Chinese lithium producer has established strategic partnerships with a number of battery and EV manufacturers, including LG Chem, Volkswagen (OTCMKTS:VWAGY), BMW (OTCMKTS:BMWYY) and Tesla (NASDAQ:TSLA). The company also has also pursued international diversification with stakes in several lithium projects worldwide, such as Caucharí-Olaroz in Argentina, Sonora in Mexico, Mt Marion in Australia and Bacanora in the U.K.Ganfeng Lithium’s financials have struggled in recent quarters. In particular, the company has been hit by both oversupply and softening demand for lithium in China. In the first quarter, revenues declined quarter-to-quarter as lithium prices dropped at the beginning of the year. The trend was even more pronounced in Ganfeng’s second quarter results, which showed revenue declining year-over-year by 4.1%. As a result, Ganfeng Lithium’s share price has fallen 46.8% year-to-date. Despite these financial setbacks, the lithium market in China is likely to recover in the near future. As the economy continues to recover, so should consumer discretionary spending. Patient investors are likely to be rewarded in this context.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is the second-largest producer of lithium in the world, with operations in both Chile and Argentina. The company also operates one of the largest mines in the world at Salar de Atacama, Antofagasta, Chile. Salar de Atacama not only provides low-cost and high-quality source of lithium brine but is one of the largest and richest salt flats in the world.
Like many lithium producers, SQM had an excellent 2022 due to elevated lithium prices. SQM reported revenue of $10.7 billion and net income of $3.9 billion, representing YoY revenue growth and net income margin of 274% and 36%, respectively.
2023 quarterly results unfortunately have not been so stellar. In the first quarter, revenue only grew by 12.1%, while in the second quarter SQM’s revenue declined by 21.0%. Fears regarding the Chilean government’s nationalization initiative has also not helped bring volatility to SQM’s shares this year. The lithium stock has tumbled 35.3% year-to-date, which implies share are trading at a relatively cheap 6.1x forward earnings, and this could also be an opportunity for investors waiting for the lithium market to rebound.
On the date of publication, Tyrik Torres 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.
