Lithium stocks have been battered in the last few quarters with the big plunge in the metal price. Sentiments for lithium have turned bearish on macroeconomic headwinds and oversupply concerns. I, however, believe that long-term fundamentals remain positive for lithium, and the meltdown is a good opportunity to buy lithium stocks at a low valuation.
It’s worth noting that projections for 2030 indicate that lithium supply will increase to over 2.14 million metric tons. In comparison, demand for lithium is expected to reach 3.1 million metric tons. Clearly, the supply gap is likely to translate into upside in lithium.
An important point to note is that, with the sharp plunge in lithium, companies have scaled back on their investment plans. If the recovery is sharp in the next 24 to 36 months, supply concerns can be more meaningful.
I would, therefore, look at buying quality lithium stocks and holding them with patience. This column discusses three lithium stocks at low valuations that are likely to be massive value creators.
Albemarle (ALB)
Albemarle (NYSE:ALB) stock has witnessed a deep correction of 42% year-to-date. The decline does not come as a surprise as the company struggles on the back of lower lithium prices. I, however, believe that ALB stock is oversold and is worth accumulating in the range of $70 to $85.
For Q2 2024, Albemarle reported net sales of $1.4 billion. While lower lithium prices impacted growth, it was offset to some extent by energy storage volume growth of 37%.
It’s also worth noting that Albemarle reported an operating cash flow of $363 million. With cost-cutting measures, a liquidity buffer of $3.5 billion and leverage of 2.1, the company is well-positioned to navigate challenging times.
Albemarle also believes lithium demand will grow at a CAGR of 15% to 20% between 2024 and 2030. The long-term outlook is, therefore, positive, and Albemarle has the flexibility to boost capital investments once the industry outlook improves.
Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) stock has plunged 64% year-to-date. At a market valuation of $524 million, LAC stock seems deeply undervalued. I would not be surprised if the stock can deliver 5x returns in the next five years.
As an overview, Lithium Americas has ownership of the Thacker Pass asset that is estimated to have an after-tax net present value of $5.7 billion. Once both phases of production from the asset commence, the average annual EBITDA is estimated at $2 billion. Therefore, with a mine life of 40 years, the asset is a cash flow machine.
It’s worth noting that the company estimates a capex of $2.9 billion for the first phase. Earlier this year, Lithium Americas received a conditional commitment for a $2.26 billion loan from the U.S. Department of Energy. With a public offering of $275 million and the cash infusion from General Motors (NYSE:GM), the lithium miner is fully financed. Once lithium reverses from lows, it’s likely that LAC stock will skyrocket.
Arcadium Lithium (ALTM)
Like all lithium stocks, Arcadium Lithium (NYSE:ALTM) has also plunged. Year-to-date, ALTM stock has declined by 66% and looks deeply oversold. In my view, a range of $2.5 to $3 is a good buying zone for long-term investors.
In a recent development, Arcadium announced the acquisition of Li-Metal (OTCMKTS:LIMFF) for a consideration of $11 million. The acquisition will “provide safer, lower cost and more sustainable process pathways for lithium metal production.”
It’s worth noting that Arcadium already has diversified offerings. This includes battery-grade lithium hydroxide and carbonate, non-battery lithium hydroxide, high-purity lithium metal and butyl lithium.
From a growth perspective, the company reported a 2023 capacity of 40,000mt of lithium carbonate equivalent. By 2026, the capacity is expected to increase to 170,000mt of LCE. Once lithium trends higher, the increase in capacity is likely to translate into stellar growth. It’s, therefore, a good time to accumulate ALTM stock.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.