How To Invest In Lithium In 2024
How to invest in lithium, a crucial element in the rapidly growing battery industry, requires a strategic approach and a thorough understanding of market trends and dynamics.
Author:Habiba AshtonReviewer:Gordon DickersonJan 09, 20247.1K Shares154.8K Views
How to invest in lithium, a crucial element in the rapidly growing battery industry, requires a strategic approach and a thorough understanding of market trends and dynamics.
Computers, cellphones, and other consumer electronics of the modern era rely on lithium-ion batteries, which are made of the lightest metal known to man.
Lithium batteries are projected to consume 95% of the world's lithium supply by the decade's end, driven by the rapid shift towards a low-carbon economy.
Investors have been drawn to the 500% increase in lithium prices between 2020 and 2021, driven by the surging demand for electronics and electric vehicles.
Smart investment decisions in the lithium market, however, necessitate an understanding of the market's many nuances. Characteristics, market drivers, and investment opportunities related to lithium are summarized in this guide.
What Is Lithium Commonly Used For?
The alkali metal lithium—named after the Greek word for stone, lithos—has played a pivotal role in the development of contemporary society. This silver-white metal is ideal for cutting-edge technology since it is both one of the lightest elements and capable of holding a dense electrochemical charge.
Although a Swedish scientist named Johan August Arfwedson found lithium in 1817, it wasn't until 1855 that two other scientists isolated the element from its chloride salt that it was observed in its pure form.
Despite its abundance on Earth, the metal is usually discovered inside other mineral or salt deposits. Lithium must undergo months of mining and refining before it can be considered pure.
Once the commodity is refined, it finds its way into a wide variety of goods, some of which you may even discover in your own house. Ceramics, glass, lubricants, medicines, and most crucially, the creation of lithium-ion batteries—the power source for most electronic devices—all make use of it.
What Are Lithium Stocks?
Investing in the lithium mining, refining, and distribution industries is the main focus of lithium stocks, which are commodities stocks. The firms that makeup lithium stocks may also deal in the manufacturing of other minerals and metals, but lithium is something they always have on hand.
At now, lithium's primary application in electric vehicle (EV) batteries is to drive up its value. Electric vehicles may travel great distances between charges because of this metal's role in making powerful yet lightweight batteries.
Lithium prices skyrocketed as electric vehicle startups proliferated throughout the globe. A lot of lithium stocks went up in value dramatically because of this. On the other hand, lithium's recent decline in price has led to more acceptable valuations for lithium stocks.
However, if the demand for electric vehicles keeps growing, the price of lithium and the stock prices of firms involved in its mining, refining, and distribution might rise once again.
How To Invest In Lithium Stocks
Putting money into lithium stocks is no different from putting money into any other type of investment. You should first choose which lithium stocks are right for you by doing your research. Investors may achieve this with the help of many websites that offer paid and free options for setting up screens to assist with stock selection.
Looking into the screening technique we used to get this list could give you a good idea of what screens could be useful when selecting lithium stocks.
After deciding which stocks to invest in, the next step is to open a brokerage account and deposit funds into it. You can then buy the lithium stocks that interest you.
On the other hand, remember that each investor has unique requirements depending on their objectives. Talk to a financial planner if you need help deciding which lithium stocks to add to your portfolio.
Best Lithium Stocks To Invest
Albemarle Corp.
Chemicals provider Albemarle of Charlotte, North Carolina, was hit with a $218 million fine for FCPA violations. Over the past three months, ALB stock has dropped 30.8% due to this.
Regardless, the expanding market for electric vehicle batteries is fueling Albemarle's rise to prominence as the most valuable lithium manufacturer in the world, with a market cap of $17.9 billion.
An expansion of the company's internal lithium conversion capacity is anticipated to cause a 20% to 30% increase in the volume of lithium sales through 2027. Consequently, it is an excellent lithium stock to invest in for the long run.
Mineral Resources Ltd.
With a 2.9% forward yield, Mineral Resources, a mineral property miner and processor based in Perth, is a solid dividend bet in the lithium market. The company's stock, however, has dropped 15% in the previous three months as a result of falling lithium prices.
Mineral Resources owns the other half of the Wodgina lithium mine in Australia, and the company has agreed to pay $380 million to $400 million to increase its partnership with Albemarle to 50%.
The estimated mine life of the mine is 30 years or longer; it is one of the world's largest hard-rock lithium deposits. As an additional layer of protection, Mineral Resources and Ganfeng Lithium Group Co. Ltd. of China each own 50% of Western Australia's Mt. Marion lithium operation.
Livent Corp.
Producers of lithium hydroxide, carbonate, and chloride liquid have seen a 38.4 percent decline in their share price over the previous three months, and the stock is now trading near 52-week lows.
As a result of Livent's partnerships with Sakuu Corp. to produce 3D printable lithium-ion batteries and its six-year supply agreements with General Motors Co. and Ford Motor Co., environmentally conscious investors may perceive a green light ahead.
Additional merger partners include Allkem Ltd., an international conglomerate active in the lithium brine markets of Japan, Australia, and Argentina.
The combined firm has the potential to produce approximately 250,000 metric tons of lithium carbonate equivalent per year by 2027. Last year, the company recorded sales of $1.9 billion and EBITDA of $1.2 billion.
Lithium Americas Corp.
Even though sales of electric vehicles (EVs) have increased by 35% annually over the past three years, investors shouldn't let the current trend of falling lithium prices deter them. The present decline in raw lithium products is manageable, and lithium production companies like Lithium Americas are prepared to go into 2024.
The U.S. Department of Energy is in talks to lend $1 billion to enhance lithium battery product development, and General Motors has backed Lithium Americas with a $650 million development bankroll, forming a partnership to secure lithium supplies.
Between twenty and forty million metric tons of lithium could be contained in one of the world's most prospective lithium deposits, which is owned by Lithium and is located on the border between Nevada and Oregon.
Sigma Lithium Corp.
One of the rare lithium producers whose shares are in the black in 2023 is SGML, a Vancouver-based lithium producer whose stock price rose 5.9 percent.
The business is well on its way to becoming one of the biggest lithium producers in the world, and it has already received approaches from numerous companies, including Tesla Inc. Phase one of SGML's lithium production plan is underway, and the company expects to produce around 130,000 metric tons of lithium in 2023.
With an average price target of $47.75 per share, SGML is considered a "strong buy" by the analysts at TipRanks. On October 4, the stock price was $29.88/share.
Horizons Global Lithium Producers Index ETF
A good option to participate in the lithium manufacturing industry is through an exchange-traded fund (ETF), which allows investors to acquire shares in several firms all in one convenient bundle. Investors can spread their risk among a variety of firms with different fundamentals and geographic concentrations in such a scenario.
Global enterprises that mine or manufacture lithium, lithium compounds, and components connected to lithium are the focus of the Horizons fund, which does exactly that.
Pilbara Minerals Ltd. (OTC: PILBF), owner of the Pilgangoora lithium project—one of the world's largest hard-rock lithium operations—and Mineral Resources Ltd. (MIN.AX), its second-largest holding, each comprising 10.6% of its portfolio, are its owners, respectively. Sigma Lithium, Livent, and Albemarle make up 5.9%, 8.7%, and 6% of the ETF's portfolio, respectively.
At the end of the trading day on October 4th, the Toronto Stock Exchange fund had an expense ratio of 0.89% and a dividend yield of 2.2% on an annualized basis. With only $25.3 million in assets, it is quite modest for an exchange-traded fund.
Global X Lithium & Battery Tech ETF
With $2.5 billion in assets, Global X is an exchange-traded fund (ETF) that invests mostly in lithium companies. Its holdings include major stakes in Albemarle, Tesla, and Rivian Automotive Inc. (RIVN).
Both the CHIPS and Science Act ($280 billion in additional financing) and the Inflation Reduction Act ($580 billion in additional spending) have helped these businesses. The ETF maintains a cost ratio of 0.75%. To mitigate the effects of price fluctuations, lithium exchange-traded funds (ETFs) like LIT spread investors' money across several links in the lithium supply chain.
Global X's ownership of mine, refining, and battery production firms gives them a foothold in the lithium market across conventional sectors and geographical boundaries. Hence, lithium ETFs provide an excellent opportunity to put money into a rapidly expanding sector that is creating "the new oil."
Are Lithium Stocks A Good Investment?
Several lithium stocks hit all-time highs in late 2021, but the industry encountered some difficulties in 2022, causing several of these stocks to fall significantly from their peaks.
The market's inherent cyclicity is at fault for some of this. It was inevitable that lithium stock prices would fall after years of rapid appreciation.
Due to market circumstances, Goldman Sachs issued a warning about the excessively high prices of lithium stocks in late 2021. The fact that prices have dropped to within Goldman's goal range suggests that this forecast was correct.
All things considered, the stock market has fallen because of the Federal Reserve's sharp increase in interest rates. Lithium stocks may benefit from continued growth in demand for electric vehicles and other electronic goods, even if demand temporarily declines.
Is Lithium A Good Investment?
Lithium is a crucial component in various industries, including electronics and electric vehicles. The future supply of lithium is uncertain, as manufacturers compete to meet demand. However, the potential for lithium mining has been recognized by Elon Musk and Warren Buffett.
Buffett's Berkshire Hathaway has experimented with brine technologies to extract lithium, supported by President Biden's $3 billion stimulus package in Q1 2022.
The lithium market is thriving, but it is not immune to competition from innovative technologies or lithium alternatives. Battery anodes can be replaced with other elements, and sodic and potassic fluxes could be used for ceramics and glass industries.
FAQs - How To Invest In Lithium
What Are The Key Factors To Consider When Investing In Lithium?
Lithium investors should focus on factors such as supply and demand dynamics, technological advancements, and the geopolitical landscape surrounding lithium production.
How Can I Assess The Potential Risks Associated With Investing In Lithium?
To evaluate risks, investors should analyze market volatility, regulatory changes, and competition within the lithium industry, in addition to considering the financial health of lithium-producing companies.
Are There Alternative Methods Of Investing In Lithium Aside From Direct Stock Purchases?
Investors can explore exchange-traded funds (ETFs) focused on lithium, allowing them to diversify their investment and reduce exposure to the volatility of individual lithium stocks.
What Role Does Lithium Recycling Play In The Investment Landscape?
Understanding the impact of lithium recycling on the market is crucial for investors, as advancements in recycling technologies can influence the overall supply chain and, consequently, investment opportunities.
How Does Global Demand For Electric Vehicles Impact Lithium Investment Strategies?
With the rising demand for electric vehicles, savvy investors should stay abreast of trends in the automotive industry to align their lithium investment strategies with the anticipated growth in lithium-ion battery production.
Final Thoughts
Mastering the art of how to invest in lithium can unlock significant potential for financial growth, as this essential element continues to play a pivotal role in powering the future of renewable energy and electric transportation.
As the demand for renewable technologies and electric vehicle batteries keeps on rising, investors can consider purchasing stocks of companies that produce or use lithium in these and related applications.
In addition to directly participating with options and futures, investors can acquire a stake in lithium stocks through exchange-traded funds (ETFs). The green industry has brought more attention to the lithium market, which makes it a valuable commodity for diversification.
But if you want to make money investing in lithium, you need to keep up with the latest developments in the electric vehicle revolution, extraction methods, and mining operations.
Staying informed about lithium news and understanding the drivers of supply and demand can help investors gain exposure to this market. In the end, individuals looking to invest in this fascinating commodity can consider lithium stocks and ETFs as great choices.
Habiba Ashton
Author
Gordon Dickerson
Reviewer
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