Lithium prices are soaring, contrary to what Goldman Sachs said toward the end of May, when it predicted the end of the bull market for metals used in electric batteries, including lithium. Due to that report, many lithium stocks plunged.
In this piece, we used TipRanks’ Comparison Tool to evaluate two lithium-exposed stocks with solid fundamentals, diversified revenue streams, and other features that potentially warrant long-term bullish ratings.
Soaring Lithium Prices
Lithium prices have soared past $70,000 per metric ton in recent weeks, approaching the record highs set earlier this year. The supply of the metal is far short of current demand levels, which is bullish for lithium stocks.
Bears argue that lithium prices will come down soon, weighing on lithium producers, but it’s expensive and time-consuming to mine lithium. It takes three to seven years to get projects up and running, depending on the type of lithium extraction process used. Then, there is the time needed to set up the rest of the supply chain, which includes battery factories.
As a result, the lithium shortage won’t go away anytime soon, so it looks like lithium producers have a long runway for growth based purely on lithium prices. Even if they don’t rise further from current prices, the revenue numbers from the companies mentioned below are robust.
Albemarle (ALB)
About half of Albemarle’s revenue comes from lithium, while the rest comes from specialty chemicals. The company is headquartered in the U.S. but owns lithium mines in Chile and Australia. Albemarle is one of the world’s largest lithium producers that supply the metal to electric vehicle makers.
The company is also pouring capital into doubling the size of its production capacity to help meet the growing demands for electric vehicle batteries.
Albermarle’s Recent Developments and Improving Financials
Albemarle boosted its net sales 36% year over year to $1.13 billion. After selling its Fine Chemistry Services segment, the company’s net sales rose 44%. Adjusted EBITDA rose 88%, or 107%, if you exclude the FCS business.
Net sales in Albemarle’s Lithium segment rose nearly 100% year over year in the first quarter, while net sales in its Bromine division rose 28%. However, the company’s Catalysts segment recorded a 1% decline in net sales.
Albemarle warned of continuing declines in its Catalysts division due to volatile natural gas prices in Europe stemming from the war in Ukraine. Nonetheless, the Lithium and Bromine divisions should protect against those declines.
Albemarle’s MARBL Lithium Joint Venture will start operating the second train at its Wodgina Lithium Mine in July, expecting its first production of spodumene concentrate, a source of lithium carbonate, with brine being the other primary source. More production means more to sell, meaning further increases in revenue. Albemarle is also working on setting up lithium production operations in China.
The company raised its 2022 guidance upward due to increased prices for lithium and bromine. The company expects its net sales to grow 60% to 70% year over year and its adjusted EBITDA to increase 100% to 140% year over year.
Shares of Albemarle are down about 21% over the last month as they fell alongside most other stocks. Even commodity stocks are down despite the soaring commodity prices, so it’s hard to see why a bullish view isn’t warranted.
Turning to Wall Street, Albemarle has a Moderate Buy consensus rating based on 10 Buy ratings, three Hold ratings, and three Sell ratings over the last three months. At $270.07, the average Albemarle Capital price target implies upside potential of 31.7%.
Livent (LTHM)
Livent is a technology company that produces lithium-ion batteries not only for electric vehicles but also for smartphones and other consumer devices. Roughly half of its revenue comes from energy-storage products, giving it some excellent exposure to a related rapidly growing industry.
The other half of Livent’s business comes from polymers and alloys used across a range of products ranging from aircraft to athletic shoes. Serving such a wide array of industries only strengthens the bullish potential for this company and its stock.
Livent mines its own lithium in Canada and Argentina and enjoys large amounts of business from Tesla (TSLA), as it is one of the automaker’s primary lithium suppliers. Tesla’s CEO Elon Musk has repeatedly called on lithium miners to increase their production due to shortages caused by the electric vehicle industry, and Livent has been pushing forward in response.
Livent’s Rapid Growth
Although lithium mining isn’t generally seen as a growth sector, Livent almost certainly qualifies as a growth company. It was founded in October 2018, but it has already made some important connections that have enabled it to land important clients like Tesla.
Livent is enjoying rapid growth with a 56% year-over-year increase in revenue for the first quarter and a 609% quarter-over-quarter increase in GAAP net income. Its net income also flipped from negative to positive when looking at year-over-year results.
The company is already profitable and has a solid track record with earnings beats in three of the last four quarters and a steady stream of revenue beats. In the first quarter, Livent almost doubled its adjusted EBITDA quarter-over-quarter and significantly raised its 2022 guidance, guiding for an almost five-fold increase in adjusted EBITDA from 2021.
The company remains on track to deliver all its previously announced expansions in capacity. Livent is also planning significant additional expansions in capacity for both lithium carbonate and lithium hydroxide. It expects to almost double its total available lithium carbonate equivalent from 2021 levels by the end of next year.
Livent is also planning further expansions in Argentina and China and is considering building a new facility in either North America or Europe to process lithium material from battery recycling into lithium hydroxide.
The company has also agreed to double its ownership interest in Nemaska Lithium to 50%. Although Livent significantly diluted shareholders by issuing 17.5 million shares of its own stock to increase that ownership interest, it seems like a wise move.
Overall, Livent and Albemarle could offer ways to tap into the growth of electric vehicles without buying the potentially overpriced shares of electric vehicle manufacturers.
Livent has a Moderate Buy consensus rating based on three Buy ratings, three Hold ratings, and zero Sell ratings over the last three months. At $33.40, the average Livent price forecast implies upside potential of 50.7%.
Final Thoughts
Neither Albemarle nor Livent is a pure-lithium play, but that’s one thing that makes both of them attractive. While their exposure to lithium presents excellent opportunities in light of the growing demand and short supply of the metal for electric vehicle batteries, having exposure to other markets as well makes these two firms potentially attractive for a long-term portfolio.
