Lithium maker stocks rose sharply in late 2020 and early 2021 with a massive shift of automakers to electric vehicles. For investment, it is worth choosing the industry leaders who are likely to benefit most from this trend.
For global lithium producers, the “pandemic” 2020 turned out to be a crisis year, primarily due to an excess of supply and a decrease in lithium prices against this background.
However, with the coming to power in the United States of Joe Biden and the Democratic administration, the world’s largest economy “headed” towards green energy. A bill is under discussion in Congress that would allow the electric vehicle industry to receive various subsidies, incentives, and assistance to build a $ 174 billion national network of 500,000 charging stations over the next 10 years.
Similar measures are being taken in Europe, while many of the world’s largest automakers (General Motors, Ford, Volkswagen) have announced plans to switch to electric vehicles.
Electric vehicle demand rose sharply in the second half of 2020 and grew by 43% globally for a full year.
Against this background, shares of manufacturers of lithium, a chemical element used in batteries for electric vehicles, rose.
Among the manufacturers, there are three industry leaders, whose shares should rise against the background of a favorable trend:
1. Albemarle (ALB)
2. Livent Corporation (LTHM)
3. Sociedad Química y Minera de Chile (SQM)
The shares of each of these three companies rallied in late 2020 – early 2021 – in the chart below, the red line indicates the rise in the shares of Sociedad Química y Minera de Chile, the blue line – the shares of Livent Corporation, on the candlestick chart – the rise in the shares of Albemarle.
Each of these companies saw significant revenue and profit growth in the first quarter of 2021.
Albemarle (ALB) not only mines lithium, but also bromine (used for fire safety products) and other specialty chemicals.
Albemarle plans to double production at its lithium plant in Silver Peak, Nevada, and spend approximately $ 1.5 billion over the next five years on lithium projects in China, Australia and Nevada. With this increase in lithium production, the company will see impressive growth in revenue and profitability.
Albemarle’s first quarter report showed revenue growth 12.2% yoy to $ 829.3 million, of which lithium revenue accounted for $ 279 million (an 18% yoy increase last year). Earnings per share also rose 10%.
Over the past year, Albemarle (ALB) shares have risen by 131.7%, from the beginning of 2021, the growth has been almost 19%.
The maximum target price for Albemarle shares from Evercore ISI analyst is $ 200 per share, which represents an annual growth forecast of 14% from the price of $ 175.51 at the close of trading on Friday 9.07.
Livent Corporation (LTHM) – exclusively engaged in the production of lithium and is one of the five largest world leaders.
For most of 2020, the company’s revenues have been declining on the back of lower lithium prices, but the past two quarters have seen a recovery. Livent’s revenues in the first quarter of 2021 are up about 34% year-on-year to $ 91.7 million. Quarterly profit before taxes also rose 18% to $ 11.1 million. The company also gives a strong forecast for the full fiscal year. …
Livent has announced plans to achieve carbon neutrality by 2040.
Livent (LTHM) shares are up nearly 230% over the year, up 5.4% since the beginning of 2021.
Analyst Raymond James’ maximum target price for Livent shares at $ 24 per share represents a 21% year-on-year forecast of $ 19.85 at the close of Friday 9.07.
Sociedad Química y Minera de Chile
Sociedad Química y Minera de Chile (SQM) is a Chilean chemical company mainly focused on the extraction of lithium and potassium. Like its competitors, it did poorly last year, but the latter saw a two-quarter recovery amid improving industry outlook.
SQM’s first-quarter revenues grew 34% on the back of a huge 180% increase in lithium sales and 53% earnings per share. As a result, the company’s forecast for lithium carbonate sales for 2021 improved by at least 30%. In addition, the company is optimistic about plans to expand its lithium production in Chile.
SQM shares are up 77.85 over the year, and since early 2021 they have yet to take a positive trajectory.
The maximum target price for SQM shares from Deutsche Bank analyst at $ 70 per share represents a strong 46% year-on-year growth forecast of $ 47.91 at the close of Friday 9.07.
Analysts expect Sociedad Química y Minera de Chile to significantly improve future earnings growth, with estimates well ahead of industry averages. Thus, in the coming months, SQM shares may return to growth.
Overall, the outlook for all three stocks is improving over the medium to long term on the back of good macroeconomic conditions, in particular expectations of higher average lithium prices by the end of the year.
The growing demand for lithium will continue to increase the profitability of these companies at an incredible rate. In the near future, investors will see this in the companies’ reports for the second quarter.
Read also “Five stocks of lithium and hydrogen fuel cell companies to look out for”.