No matter how innovative or utilitarian a new platform may be, all modern technologies require a catalyst to operate. For most devices, this requirement translates into a lithium-based power source. Nowadays, almost everything we use runs on the silver-white metal. Logically, the idea of buying lithium stocks is a frequently made suggestion.
However, the markets sometimes deploy their own logic, which seemingly runs counter to the fundamentals. For instance, industry demand for lithium remains robust, and is likely to increase as electronics manufacturers pump out smart devices. Yet the benchmark exchange-traded fund Global X Lithium ETF (NYSEARCA:LIT) is down more than 18% over the past year.
Why the disconnect between lithium stocks and underlying industry demand? Mostly, experts in the field forecasted an overabundance of supply due to mining companies ramping-up production. Additionally, last year Morgan Stanley analysts predicted a massive drop in the commodity’s price over the next few years that could outpace even tremendous demand from electric vehicle companies.
The bearish prognostications occurred in the first two months of this year. Unfortunately, lithium and lithium-based battery stocks have largely failed to recover from the sentiment fallout. Recently, though they have begun their slow return, adding a little more than 1% so far this year.
Granted, the extreme negativity makes this sector incredibly risky. But I also want to remind readers that forecasts are ultimately opinions. They may be well-crafted or well-analyzed opinions, but they’re still non-factual expectations of future events.
I choose to rely more heavily on actual data. The abundance of evidence demonstrates that lithium demand is increasing in virtually every corner of the broad, technological spectrum. Perhaps mining production could outpace demand. But for now, lithium continues to be among the most highly requested industrial commodities.
Here are my ten picks for lithium stocks to take advantage of the market’s irrationality…
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 (NYSE:ALB), the selloff presents a viable contrarian opportunity.
I’m not going to beat around the bush: ALB stock has taken a massive beating, even compared to the lithium industry’s bloodbath. Over the past year, shares have lost nearly 23% in the markets.
That said, I’m encouraged with some positives in the company’s financials. After absorbing a disappointing dip in revenues in 2016, Albemarle bounced back the following year. The growth continued in 2018 with revenues growing from $3.07 billion to $3.37 billion. Should the Albemarle FY2019 Q1 report disappoint, the company will still remain on the upswing.
As industry demand is only going to get stronger, Albemarle’s present weakness is a great entry point.
Sociedad Quimica y Minera (SQM)
For its sheer dominance in the sector, no discussion about lithium stocks is complete without mentioning Sociedad Quimica y Minera (NYSE:SQM). 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.
Unfortunately, as with many other lithium stocks, SQM suffers from a divergence between fundamental bullishness and technical trading. Over the past year, shares are down 32%. At the same time, the worst of the bearishness appears to have subsided. Since the beginning of 2019, SQM is down 5.7%.
One risk factor to watch out for is sales growth. In its last earnings report in Q4, the mining company delivered $565 million, which was$10 million down from the year-ago quarter. Obviously, Wall Street will want to see significant improvement in 2019 (SQM reports May 22).
That said, SQM’s position as a lithium production leader should bode well for the future, if you’re willing to be patient.
Tesla (TSLA)
If you’ve followed market news over the past few months, you’re well aware that sentiment toward Tesla (NASDAQ:TSLA) was poor. Primarily, questions about the company’s cash burn, and its history of making big promises but failing to deliver took a heavy toll on the investment community. Plus, CEO Elon Musk’s strange and rude behavior didn’t do any favors for TSLA stock.
Recently, though, the company announced it would raise capital sending it into another period of volatility. It’s one that the company will come through, though. Plus with prices off a little more than 15% so far this year, Tesla is getting even more attractive.
I don’t want to speak too early, but for me, Tesla is finally back on track, even if the markets don’t see it yet.
Continue reading at InvestorPlace to see the rest of the list…
