Investors certainly can’t be blamed for avoiding lithium stocks right now. Prices for the battery metal continue to be low after a year in 2023 that saw the sector implode. Waning demand for EVs in China is a big factor in the decline. A weakening Chinese economy served to compound the issue. Yet, long-term demand continues to be strong and makes it prudent to invest in lithium stocks built for the long haul.
In this case, it looks like bigger is going to be better. That means investors should consider putting their money behind the most capitalized lithium firms.
Those firms tend to have the lowest overall risk but also tend to benefit from the continued strong upside inherent to the lithium sector. In short, these stocks are relatively safe while also benefiting from the ability to double in price in many cases. It will likely take some time for those gains to materialize, but prices are unlikely to get much cheaper, so now is the time to make a move.
Albemarle (ALB)
Albemarle (NYSE:ALB) is the world’s largest lithium producer. That simple, powerful fact makes it a strong stock for the long haul. Depending on where one looks, they will find slightly varying forecasts for its future price. Some suggest it should move up by roughly 20% this year, while others suggest closer to 40%.
The more accurate prediction remains to be seen, but the point is that Albemarle will rebound at some point and has an incredibly low likelihood of failure. Thus, a patient investor will be rewarded for buying ALB shares soon.
Yet, the news remains mixed. Albemarle provided strong earnings in mid-February that suggested things weren’t as bad as many expected. Albemarle downgraded its 2030 outlook for lithium production by 10% at the same time. That wasn’t good news, but the company also revised that figure up by 15% a year earlier. The company continues to adjust to a period of reckoning but is safe and will grow moving forward.
Sociedad Quimica y Minera (SQM)
Sociedad Quimica y Minera (NYSE:SQM) is another large lithium miner whose stock benefits from the advantages of scale. Simply put, like Albemarle, SQM is highly unlikely to fold and is also highly likely to provide impressive returns for patient investors over the long haul.
There are at least two technical reasons that make investing in Sociedad Quimica y Minera a smart move at the moment. For one, it is incredibly inexpensive. Its current price-to-earnings ratio is at 7, and its median has been close to 24 over the past decade. That doesn’t make it unique within the lithium sector: Shares throughout are inexpensive as demand has cratered. Yet, those lower prices have created another technical reason to consider SQM shares. They raised the company’s dividend yield to over 6.6%.
That’s a strong incentive to invest and raises potential returns substantially. Sociedad Quimica y Minera has a history of raising its dividend substantially when times are good. In 2022 and early 2023, those dividends ranged as high as $3.15 per quarter. Today, it pays roughly 50 cents per quarter, which still yields 6.69% on cost. Long story short, there’s strong income to be had while investors wait for lithium prices to rebound.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) entered the game late and has not rewarded investors in its short life. Yet, the lithium stock is too strategically important for it not to succeed.
The obvious reason to believe that Lithium Americas is built for the long run is that it sits on one of the largest lithium resources on Earth — Thacker Pass in Nevada. Its presence within the United States makes it strategically important to the domestic EV industry. That must have been a big part of the calculus behind management’s decision to separate the company’s operations to isolate Thacker Pass as the current LAC stock.
That strategic importance is also the reason that Lithium Americas is likely to succeed over the long term. The company is actually not in a bad spot anyway. It is expected to begin production in 2026, which should coincide with stronger lithium prices. So, it’s not necessarily bad that the lithium price collapse happened when it did. A stronger market would have benefited shareholders, but the company isn’t producing lithium yet anyway. It should be hitting its stride in a couple of years, and that will line up with a rebound that has the potential to multiply share prices several-fold.
Sigma Lithium (SGML)
Sigma Lithium (NASDAQ:SGML) continues to position itself as one of the more prominent producers of green lithium. Lithium stocks have faced a lot of blowback for their green marketing. Pundits question whether the mining of lithium is cleaner than that for other commodities as well as the production of EV batteries.
Sigma Lithium is attempting to answer some of those questions and is pushing forward with the financing for the construction of its second Quintuple Zero Green Lithium plant. The Quintuple Zero Green Lithium is characterized by zero net carbon, zero coal power, zero tailing dams and zero utilization of portable water. If I were on the naming committee I would call that Quadruple Zero Green Lithium — but I digress. Regardless, the completion of the plant will increase such production from 270,000 to 510,000 tonnes annually.
Investors who are particularly concerned with the environmental effects of lithium mining should consider Sigma Lithium.
Ganfeng Lithium (GNENF)
Ganfeng Lithium (OTCMKTS:GNENF) is the largest producer of lithium in China, making it analogous to Albemarle stock in many regards. It is one of the most important links in the lithium supply chain in the world’s largest EV market.
Wall Street believes the stock is set to perhaps 10X over the next 12 to 18 months. It offers much greater returns than Albemarle in that regard. Yet, both firms have high appreciation potential. However, unlike Albemarle, Ganfeng Lithium does not currently pay a dividend.
The stock is very inexpensive and trades alongside other penny stocks for a share price of around $3.50. It is inherently risky given its low price, but there’s also good news to consider. GNENF shares have a beta of 0.75, indicating they aren’t particularly volatile. That looks to be true over the last six months, as share prices have basically settled to a low.
Pilbara Minerals (PILBF)
Pilbara Minerals (OTCMKTS:PILBF) is another lithium penny stock to consider. The company owns 100% of the largest independent hard rock lithium operations in the world. The mine is expected to be operational for up to 34 years, so it is certainly built for the long haul from that perspective.
The company doesn’t really have any production issues like some of the other firms mentioned here. Instead, it continues to plod along with production and sales volumes increasing by 4% and 7%, respectively.
Yet, prices have collapsed, resulting in revenues declining by 65% during the same period. The positive news within that negative news is that Pilbara Minerals remains profitable despite a 67% price drop.
The thing that investors should note here is that the company owns the rights to the largest independent hard rock lithium operation globally. Share prices will likely continue to face difficulties in the near to medium term but the company is well situated given its ownership.
Atlas Lithium (ATLX)
Atlas Lithium (NASDAQ:ATLX) is a well-regarded upstart lithium firm with a stock that currently trades for approximately $13.25. I mention that it is well regarded because the analysts covering it expect the stock to more than triple in the worst-case scenario. Those same four analysts have each given Atlas Lithium the highest rating possible — Strong Buy.
The stock reminds me of Lithium Americas in that each firm is an upstart chasing the coincidence of mining commencement and rising lithium prices. Atlas Lithium recently achieved fully funded status and is expected to begin producing lithium in Brazil later this year.
The project will operate from Brazil’s Lithium Valley, which is noted for its low-cost production. That inexpensive production has drawn investments from companies globally in China and the United States.
The Brazilian state of Minas Gerais is quickly becoming a strategically important area for lithium production. Investors seeking deeper opportunities within the lithium sector would be wise to identify projects within the region.
On the date of publication, Alex Sirois 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.
