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Stocks  | July 10, 2020

As one of the most important metals, lithium offers long-term relevance. However, global jitters from the U.S.-China trade war, combined with a massive increase in supply took the wind out of lithium stocks. And that was before the novel coronavirus disrupted almost every corner of the economy. Now, the outlook for lithium is under pressure due to fears of a protracted recession.

Until we get a clearer idea of the real damage and the viability of a recovery effort, almost all investment sectors will carry at least some burden of skepticism. But that doesn’t mean that lithium stocks are out of the picture indefinitely. Though you’ll need to exercise caution and vigilance, this market offers upside potential despite challenging fundamentals.

First and foremost, technology always moves forward. Because lithium remains a crucial commodity for electronics — and especially for the burgeoning electric vehicle market — lithium stocks will likely receive attention from investors. Why? I don’t expect the pandemic to reverse humanity’s pursuit of progress and innovation.

Second, the coronavirus may inadvertently be a longer-term catalyst for lithium stocks. Given that the U.S. is in a critical election year, President Donald Trump has pivoted to an aggressive stance against China. While that might appeal to his conservative base, it doesn’t necessarily help ease already frayed international relations. Thus, we may see a shift away from Chinese sources of lithium.

Third, the EV market may help provide insulation against geopolitical shocks. For example, though the oil price war between Saudi Arabia and Russia brought cheaper gasoline prices for drivers, it heaped further pain on the American oil industry, which was already suffering.

  • Albemarle (NYSE:ALB)
  • Sociedad Quimica y Minera (NYSE:SQM)
  • Tesla (NASDAQ:TSLA)
  • Orocobre (OTCMKTS:OROCF)
  • Livent (NYSE:LTHM)
  • Power Metals (OTCMKTS:PWRMF)
  • Lithium Americas (NYSE:LAC)
  • Galaxy Resources (OTCMKTS:GALXF)
  • American Battery Metals (OTCMKTS:ABML)
  • Pilbara (OTCMKTS:PILBF)

However, reducing our dependence on oil and ramping up an EV infrastructure would allow more economic independence from commodity price fluctuations. Therefore, these 10 lithium stocks are likely still relevant.

Lithium Stocks: Albemarle (ALB)

Several of the lithium stocks that analysts commonly discuss are admittedly speculative affairs. As a result, the downturn in the lithium market has severely and disproportionately impacted the industry’s direct competitors. But for a solid, renowned organization like Albemarle, the selloff presents a viable contrarian opportunity.

Admittedly, ALB stock is not for everyone, considering that shares have dropped nearly 35% from its closing high this year. Further, Albemarle’s mixed earnings report for the first quarter — beating on earnings per share but falling short on revenue — demonstrated the pain caused by the coronavirus.

Still, Albemarle expects some positive news on this front as energy storage orders should be somewhat stable in Q2, thanks to cathode and battery producers filling order backlogs. Also, brewing political tensions have the potential to lift ALB stock, given the very real possibility of an economic arms race with China.

Sociedad Quimica y Minera (SQM)

Due to its sheer dominance in the sector, no discussion about lithium stocks is complete without mentioning Sociedad Quimica y Minera.

SQM is based in Chile, which according to CNBC enjoys the world’s largest lithium reserves.

In fact, CNBC was quite emphatic about this point, noting that no other nation comes close to Chile’s 7.5 million metric tons of the hotly demanded metal.

What’s truly compelling about SQM stock is the general stability of the underlying company’s host nation. Historically, relations between the U.S. and Chile are favorable. While this has been put to the test under the Trump administration, the U.S. still represents a critical trading partner to Chile.

When you’re dealing with lithium stocks, you’re already in a volatile market. With SQM, you can at least take away some political variables. This narrative has become even more crucial considering the potential stare down with China.

Tesla (TSLA)

While Tesla has been one of the strongest innovators of our time, its sometimes controversial CEO Elon Musk has made TSLA stock unusually exciting. However, recent moves have been nothing short of explosive. Even now amid the coronavirus devastation, shares are inching their way toward four-digit prices.

In part, that’s because the pandemic has brought certain realities to light. First, an urgency now exists to control critical supply chains. Therefore, Tesla’s idea of getting into the lithium mining business has much greater traction.

Second, EVs are incredibly disruptive because of their relative ease of manufacturing. Simply, the electric platform requires far fewer parts than a traditional combustion engine vehicle. Of course, this invites a lower barrier of entry, which would be right up China’s alley.

However, what the Chinese don’t have is Tesla’s international brand appeal. That should allow TSLA stock to maintain its dominance in the markets. Plus, Tesla will become more nationally significant as a provider of relevant, high-paying jobs.

Orocobre (OROCF)

Direct lithium stocks that aren’t completely speculative affairs are difficult to find. Frankly, Orocobre will not suit everyone’s capacity for risk and general volatility.

However, the Australia-headquartered mineral resource company may offer substantial upside for the adventurous investor.

First, according to the company’s website, Orocobre has built “the first large-scale, de novo brine based lithium project in over 20 years at its flagship Salar de Olaroz resource” in the Argentinian portion of what industry analysts have termed the “lithium triangle.” That gives OROCF stock some street cred to help assuage concerns of viability.

Second, Orocobre has a partnership with Toyota Tsusho (OTCMKTS:TYHOF) in building and now operating the aforementioned brine-based lithium project, along with other key projects. One of them involves the construction of a lithium hydroxide plant in Naraha, Japan. As energy diversification increases internationally, these projects represent a springboard for future revenue opportunities.

Finally, I don’t think you can ignore the geopolitical implications toward lithium stocks. As many countries shun China and look for energy sources from stable jurisdictions, Orocobre suddenly has enhanced appeal. Though OROCF stock is deflated now, that might not be the case later this year.

Livent (LTHM)

In the entertainment world, audiences look forward to spinoffs to provide further insights into favorite plots and characters. But within the investing world, spinoffs are touch-and-go affairs.

Just take a look at Livent. Formerly the lithium arm of FMC (NYSE:FMC), LTHM stock began life as its own publicly traded entity in October 2018. To put it mildly, results are not favorable, with shares down a whopping 69% since the initial public offering.

If that wasn’t bad enough, LTHM stock appeared to be headed toward a recovery in 2020. Up until mid-February, shares had a strong start. But that was around the time when it became apparent that the Covid-19 outbreak would become a pandemic.

Still, lithium demand broadly is not going away. From smaller electronics to large batteries, everyone is diving into this sector. Therefore, Livent is attractive as a speculative contrarian opportunity.

Power Metals (PWRMF)

Contrary to what some may believe, not all lithium-mining processes are the same. Currently, the two most popular methods are lithium brines and lithium-cesium tantalum pegmatites, more commonly referred to as “hard rock.”

Lithium brines represent the most popular method to which most lithium stocks are levered. However, the drawback is that the process is vulnerable to weather-related issues.

Given that industry demand for the metal is constantly rising, unfavorable weather could severely impact production. To get around this issue, lithium miners are exploring hard rock, which is essentially weather-independent.

One mining company that’s putting the hard-rock concept to the test is Power Metals. With several projects spread around resource-rich Canada, Power Metals aims to be a significant provider of lithium. Plus, the company’s geographically stable region is a big positive for PWRMF stock.

That’s the good news. The not-so-great news is that Power Metals is a genuine, over-the-counter penny stock. Shares tanked spectacularly between the beginning of 2018 through the end of 2019. But PWRMF stock has absolutely skyrocketed this year.

Can it maintain this newfound momentum? Admittedly, you don’t want to get too heavily involved with penny stocks. At the same time, the astounding lift demonstrates the incredible viability of lithium stocks, particularly in this geopolitically charged environment.

Lithium Americas (LAC)

Lithium Americas is a direct but completely speculative gamble on the growth potential of lithium stocks. LAC earned itself a healthy dose of street cred with its joint venture with Sociedad Quimica y Minera. Then Ganfeng Lithium bought out SQM in the agreement. Lithium Americas now owns 62.5% of that venture.

The knock on LAC stock, of course, is that it’s volatile. Against its closing high of this year, shares are down more than 55%. However, you can also look at the glass as half full. At one point, LAC was up more than 37% since the beginning of this year.

Plus, I believe that many analysts’ bearishness toward the lithium industry is overplayed. Yes, commodity prices fluctuate year to year for various reasons. However, the demand for lithium is broadly trending higher.

It’s not just electric vehicles and other physically imposing technologies that require lithium. Consider that the burgeoning e-cigarette and vaporizer market requires a healthy lithium supply chain to keep running.

So long as the drive for innovation exists, so too will lithium demand. This adds some measure of confidence to the otherwise speculative LAC stock.

Galaxy Resources (GALXF)

Most direct plays in the lithium sector invariably involve mining stocks. Even in the best circumstances, commodity miners aren’t known for their stability and reliability. That said, one of the better ways to help mitigate this risk is to seek companies with diversified portfolios. Galaxy Resources is one such example.

Galaxy’s primary claim to fame is its Sal de Vida project, located in northwest Argentina. Situated in the lithium triangle, the area produces more than 60% of the global lithium supply.

Beyond that, GALXF has projects in its native Australia, as well as Canada. Both regions are geopolitically stable, eliminating a major headache for investors. As I’ve mentioned near the top, stability is a key attribute as we mitigate our supply chains away from China.

Regarding risk factors, you should note that GALXF is a legitimate penny stock, with shares trading in a range around 50 cents. However, you can also make the argument that Galaxy has stabilized over the past two months.

At the end of the day, the extremely low price point is a distraction for Galaxy and other lithium stocks. However, do note that automakers like Toyota (NYSE:TM) could help pick up the slack. Therefore, it’s not entirely unreasonable to see GALXF move higher from here, especially if the geopolitical arena gets nastier.

American Battery Metals (ABML)

Typically, American Battery Metals wouldn’t show up on my radar due to its extremely speculative nature. One only needs to look at the subterranean price for ABML stock to recognize that this isn’t for the risk averse.

That said, the underlying platform is compelling. While it’s highly unlikely that the U.S. can bring back all its manufacturing, a heightened interest exists to insulate industries that are essential to our economy and overall security. In the 21st century and beyond, that means lithium.

Further, American Battery Metals is planning on developing a superior lithium extraction process. If successful, the new technology could bolster our supply chains through faster deliveries. Speculation on this success is what has driven ABML stock in the past.

Of course, that’s no guarantee that American Battery’s process will work out in the end. Nevertheless, if you’ve got some dumb money lying around, you may want to consider this long-shot bet.

Pilbara (PILBF)

Taking a cue from other lithium stocks, Pilbara has absorbed a beating from the coronavirus. On a year-to-date basis, PILBF stock is down 18%.

Over the trailing 52-week period, the Australian lithium-tantalum miner has dropped a staggering 69%.

Of course, this specific mining segment is in a tough spot. While demand is broadly rising, economic tensions between the U.S. and China previously clouded matters. That conflict hurt automotive forecasts for EVs, which has deflated sentiment for lithium stocks.

Still, one possible outcome is that the U.S. will focus on EV infrastructure as a means toward economic insulation. That could drive EV sales, which in turn may help PILBF stock. Further, I like its potential as a high-risk, high-reward opportunity. Pilbara gets its name from Australia’s resource-rich Pilbara region.

And the company’s Pilgangoora Project sits atop one of the largest lithium-ore deposits in the world.

A major plus for PILBF is that its key mining project is near established infrastructure. That means it can get its products out to port and feed global demand when it returns. Also, let’s not forget that Australia has its own beef with China regarding the coronavirus.

In the end, it’s a long shot, but PILBF stock features an intriguing narrative, especially at these deflated prices.

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