Lithium stocks have been depressed through 2023 on the back of weakness in lithium’s price. And yet, the saying, “Be greedy when others are fearful,” perfectly fits lithium stocks today. Even at deeply oversold levels, buying interest has been relatively sluggish. However, I would recommend exposure to some of the best lithium stocks for multi-bagger returns in the next 36 months.
It’s worth noting that lithium shortage is very likely. In the long term, it’s forecasted that the lithium supply-gap will be at least 1.1 million tons by 2035. And of course, this supply gap will build over time. Other analysts believe that a lithium shortage can come as early as 2025. Coupled with demand from the electric vehicle (EV) industry, these projections point to lithium trending higher.
Once sentiments reverse for lithium, the stocks discussed in this column are likely to skyrocket. Let’s discuss the reasons to be bullish on these undervalued lithium stocks.
Albemarle Corporation (ALB)
While Albemarle Corporation’s (NYSE:ALB) stock had recently touched lows of $112, the rally from deeply oversold levels has been sharp. Today, ALB stock trades near $150. However, at a forward price-earnings ratio of 6.8, it’s among the best lithium stocks to buy. ALB stock also offers a dividend yield of 1.09% and I expect healthy dividend growth in the coming years.
From a company-specific perspective, there are multiple reasons to be bullish. First, Albemarle expects sales growth of 35% to 45% for the year even with depressed lithium prices. While EBITDA margin will be impacted, the company is likely to maintain robust growth in the next five years.
To put things into perspective, Albemarle expects to increase lithium conversion capacity to 600ktpa by 2027. This would imply a tripling of capacity from 2022 levels. If this expansion is associated with an upside in lithium, the company is positioned for healthy revenue and cash flow growth.
Lithium Americas (LAC)
I would bet on Lithium Americas (NYSE:LAC) stock delivering 3x to 5x returns in the next 36 months. Moreover, I can say this with some conviction considering the underlying lithium asset and its valuation.
Lithium Americas has ownership of the Thacker Pass project, which has the largest measured and indicated lithium resource in the U.S. The asset has an after-tax net present value of $5.7 billion. For comparison, Lithium Americas’s market valuation is $1.1 billion.
Of course, production is expected only in 2026. However, the markets are likely to discount the asset valuation in the coming quarters as lithium trends higher.
I also don’t see any concerns from a financing perspective with General Motors (NYSE:GM) investing $650 million in the project. General Motors also has an off-take agreement for 10-years from the first phase of the project. This provides revenue visibility once production commences from the asset.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) is among the penny lithium stocks to buy for multibagger returns potential. From current levels of $2, I would expect five or 10-bagger returns over the next 36 months. The basic condition for this assumption to hold true is that lithium will trend higher.
Like Lithium Americas, the story for Standard Lithium is based on the value of the underlying asset. The company’s South West Arkansas Project (Lanxess) is the first commercial project with an after-tax net present value of $722 million.
However, this is the tip of the iceberg when we look at the project that’s 25 miles west of the Lanxess. The asset has one of the highest confirmed lithium grade brine in Arkansas with a base case net present value of $4.5 billion.
Therefore, the market valuation of Standard Lithium at $350 million is minuscule compared to the company’s asset valuation. I believe that potential financing of the major project and a lithium price reversal are the two upside triggers for SLI stock.
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.
