The world’s rapid transition to renewable energy and the electrification of transportation will require it to utilize certain metals on a much wider scale going forward. For the purposes of American stock investors, it’s most noteworthy that the amount of copper, silver, and lithium extracted and used will have to surge tremendously. This has led to the rise of basic materials stocks to buy.
Over 2,800 kilograms of copper are required to generate each megawatt of onshore wind and solar panels, while 8,000 kilograms are needed to generate just one megawatt of offshore wind. Copper is also essential for conveying electricity through wires, and the amount of electricity distributed will have to greatly increase to enable the electrification of transportation.
Meanwhile, Bank of America (NYSE:BAC) has said that silver is “crucial” for solar energy and is also utilized in electric vehicles. Finally, lithium is used to create the lithium-ion batteries that power the vast majority of today’s EVs.
So here are three basic materials stocks to buy in order to exploit their use in the energy revolution.
Freeport McMoran (FCX)
In North America alone, Freeport McMoran (NYSE:FCX) operates seven copper mines. Last year, the company as a whole extracted 4.2 billion pounds of copper, representing a gain of almost 10% over 2021.
FCX has pointed out that copper “is a critical metal for wire, plumbing, and hardware,” in addition to its role as the main conveyor of electricity. Consequently, the company is well-positioned to benefit from America’s increased spending on infrastructure and the onshoring trend. Additionally, the proliferation of artificial intelligence is expected to significantly increase electricity demand.
Copper prices should also be lifted by China’s economic stimulus efforts. In the past, I’ve found that Beijing excels at implementing effective economic stimulus measures.
Last quarter, FCX’s top line climbed 6% versus the same period a year earlier, and analysts, on average, expect its earnings per share to recover to $2.12 in 2024 from $169 in 2023.
Pan American Silver (PAAS)
In the second quarter, Pan American Silver (NYSE:PAAS) produced 6 million ounces of silver, along with over 248,000 ounces of gold.
For all of 2023, PAAS expects to extract 21 million to 23 million ounces of silver and 870,000 to 970,000 ounces of gold.
Noting that silver is required “for the general electrification of the economy” as well as for EVs and solar panels, Bank of America estimated that the “supply deficit” of silver would reach 125% by 2030.
Pan American Silver “has consistently paid dividends for the past 13 years,” and the shares currently have a significant dividend yield of 2.6%.
PAAS has an attractive forward price-earnings ratio of 15, and analysts, on average, expect its earnings per share to climb to 90 cents in 2024 from 45 cents this year.
Albemarle (ALB)
As I reported in a previous column, lithium miner Albemarle (NYSE:ALB) reported very impressive second-quarter results and “hiked its earnings per share projection for the full year to $25 – $29.50, versus its previous outlook of $20.75 – $25.75. ” Moreover, its top line soared 60% in Q2 versus the same period a year earlier.
The company has signed supply deals with a number of major automakers, including Ford (NYSE:F) and Tesla (NASDAQ:TSLA). Additionally, the company’s revenue from providing lithium for energy storage is growing rapidly, as it expects its sales in that area to jump 30%-40% this year.
Morningstar assigns ALB stock a fair value of $350, well above the stock’s current price of $184.
The shares are changing hands at an extremely low forward price-earnings ratio of just 8.5, making ALB one of the best basic materials stocks to buy now.
On the date of publication, Larry Ramer 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.
