The Ultimate Guide on How to Invest in Lithium Stocks
There’s no doubt that lithium demand will increase significantly in the coming years. Even a small amount of research into this metal cannot fail to leave investors bullish about lithium. But bullish isn’t enough; investors need to know how to invest in lithium. This shiny metal, until recently used mostly as an alloy enhancer in aerospace, is not exactly available over the counter. Investors will need to know: 1) How to invest in lithium stocks and 2) How to profit from lithium stocks.
There are no short answers. Lithium is going to become an ever-more-precious resource. But there are few pure lithium stocks. Lithium is not like gold or silver; you can’t just buy and trade it as a commodity. Investors should look out for promising lithium mining stocks. However, there is an indirect way to benefit from lithium: lithium battery stocks. These can include Tesla Motors Inc (NASDAQ:TSLA), which is building the world’s largest plant solely dedicated to making lithium-ion batteries.
Triple-Digit Upside for Lithium Battery Stocks?
As for lithium battery stocks, the list is shorter than actual lithium stocks. Tesla Motors, especially now that it has acquired SolarCity Corp. (NASDAQ:SCTY), is as much a lithium battery stock as it is an automotive stock. Unfortunately, one of the principal innovators in the lithium battery sector is Dyson Ltd., the famous maker of vacuum cleaners. Dyson is a private company, but look out for any Dyson initial public offering (IPO) news, because they are working on improving the standard lithium battery.
To get a sense of the growing lithium demand and the potential value of lithium stocks, consider that the battery in the “Tesla Model S” contains some 60 kg. (over 130 lbs.) of lithium. Tesla wants to increase production from 50,000 to over 500,000 cars a year over the next 24 months.
Panasonic Corporation (ADR) (OTCMKTS:PCRFY) is another major lithium battery producer. Panasonic is also one of Tesla’s main partners in building its “Gigafactory” in Nevada. Meanwhile, Sony Corp (ADR) (NYSE:SNE) is the company that invented the lithium battery, specifically the lithium-ion battery, in the early 1990s. Sony is always a company to keep in mind when it comes to electronic innovation. It is planning to sell its battery division—that is, “Sony Energy Devices Corporation”—to Murata Manufacturing Co., Ltd. (TYO:6981), another Japanese company specializing in wireless components and robotics. (Source: “Lithium-ion pioneer Sony is selling its battery arm,” Engadget, July 28, 2016.)
Top Lithium Stocks to Watch in 2017
Lithium demand will likely soar. That’s why Sociedad Quimica y Minera de Chile (ADR) (NYSE:SQM) seeks to exploit, through a joint venture with the emerging miner Lithium Americas Corp (TSE:LAC), a major lithium resource in Argentina’s Salar de Cauchari deposit located in Jujuy province. SQM will invest up to $0.5 billion dollars to extract some 40,000 metric tonnes of lithium carbonate for more than 30 years. (Source: “Chilean SQM’s Argentina joint venture project to cost up to $600 mln,” Reuters, May 5, 2016.)
As for lithium as a metal or mining resource, here is what investors need to know. About 82% of global lithium production comes from Argentina, Chile, and Australia. But there is a strong likelihood that new companies will emerge to take advantage of lithium’s potential. The list of current major producers includes FMC Corp (NYSE:FMC).
FMC stock has suffered considerably over the past few years, but few investors have been bullish on major commodity stocks since 2012. Still, where lithium is concerned, FMC’s case clearly shows that demand for this metal is rising. In the second quarter of 2016, reported last week, FMC’s lithium segment’s $63.3 million in revenue represented 7.8% of FMC’s total revenue; the lowest share of its overall revenue. But the same lithium segment had an operating margin of 26.1% compared to 8.4% year-over-year. (Source: “FMC’s 2Q16 Earnings Beat Analysts’ Estimates,” Market Realist, August10, 2016.)
Evidently, FMC’s lithium operating margins are growing quickly due to higher volumes and continuously growing demand. So FMC, which is showing other signs of improvement, is certainly one way to profit from lithium stocks. Then there is SQM, operating in Chile, which plans to expand production to meet growing demand. Regulations are enforcing production quotas.
The Future of Lithium Stocks
The largest producer of lithium is Rockwood, now part of Albemarle Corporation (NYSE:ALB), which owns 33% of the world lithium market. The corporation had revenues of over $500.0 million from lithium extracted in Australia and Chile. ALB is one of the few lithium stocks with resources based in the United States. It is working on a mine, “Silver Peak,” in Nevada. This should certainly attract business from Tesla’s Gigafactory, also in Nevada.
Meanwhile, the geopolitical implications of lithium are fascinating and make up a whole different topic for another article. But the point with lithium is that there are few places and resources in the world that can address the demand for lithium in the future. For more ideas on this important new source of wealth, click here and see our newest report, “17 Million Drivers No Longer Pay for Gas?”