With the growing demand for electric vehicles, lithium prices could see higher highs. In fact, now is a good time to consider lithium stocks to buy for the coming years.
Part of the reason for that is because, by 2035, the lithium supply gap “is projected to be acute—at least 1.1 million metric tons, or 24% less than demand.” This makes a strong case for lithium to trend higher over the next decade. Quality lithium miners are therefore positioned to benefit from production volume growth coupled with higher price realization. I expect lithium companies to be cash-flow machines. This column will discuss three lithium stocks to buy that can double in one year.
Lithium Stocks to Buy: Albemarle (ALB)
Albemarle (NYSE:ALB) is massively undervalued with a forward price-earnings ratio of 7.4. ALB is also a quality dividend stock to consider as cash flows swell. In terms of growth, the company reported revenue and EBITDA growth of 120% and 299% on a year-on-year basis for 2022. For the current year, Albemarle has guided sales growth in the range of 55% to 75%. Given the growth trajectory, the stock can easily double.
It’s also worth noting that Albemarle closed 2022 with a lithium conversion capacity of 200ktpa (tonnes per annum). The company expects to boost capacity to 550ktpa by 2027. With sustained capacity addition, revenue growth will sustain along with cash flow upside. For the current year, the company expects an operating cash flow of $2.2 billion. In addition, ALB stock has an annual dividend payout of $1.76. I expect healthy dividend growth in the next five years.
Lithium Stocks to Buy: Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is another massively undervalued name among lithium stocks to buy. I expect multi-bagger returns from LAC stock in the next few years. It’s worth noting that for year-to-date 2022, LAC stock has trended higher by 16%. Considering the positive business developments, the upside momentum is likely to sustain.
A piece of big news in the recent past has been the commencement of construction at Thacker Pass. The asset has an after-tax net present value of $4.95 billion. With commencement, the asset will be a cash flow machine. Even better, General Motors (NYSE:GM) invested $650 million to accelerate the development of the asset. I, therefore, don’t see financing growth as a concern, and project delays are unlikely.
Lithium Americas also has a 44.8% stake in an asset in Argentina. The asset is expected to deliver an annual EBITDA of $308 million and the project life is 40 years. Lithium Americas plans to list international assets as a separate entity. This is likely to translate into value unlocking.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) is another undervalued lithium stock to buy. The stock has trended higher by 27% for year-to-date 2022. I expect this rally to sustain with the stock still down by almost 30% on a 12-month basis.
In terms of assets, Piedmont has a 100% ownership stake in Carolina and Tennessee assets. These assets have a combined net present value of $5 billion. Further, the company has 50% and 35% economic interest in assets in Ghana and Quebec respectively. Considering the NPV of assets, PLL stock is undervalued.
I believe that once production commences, the valuation gap will close. The first shipment of salable products from the company is expected in Q3 2023. This is a major stock upside catalyst. It’s worth noting that Piedmont has a strong balance sheet. I don’t see financing exploration and production activities as a challenge.
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.
Leave a Reply