SQM - The 3 Best Lithium Stocks to Buy in Q2 2024

2024-03-29 11:46:00 ET

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The best lithium stocks to buy for March this year are largely insulated long-term from the effects of China’s economic slowdown, which I feel is temporary and not structural. China has set ambitious goals to lead the world in electric vehicle production and adoption. This will require vast amounts of lithium for EV battery manufacturing, regardless of short-term economic fluctuations.

China’s COVID-19 lockdowns and real estate turmoil have slowed its economy, but lithium demand is projected to surge over the next decade as the country works to meet emissions targets. China wants 60% of new vehicle sales to be electric by 2035 and is offering incentives for consumers to switch from gas-powered cars.

Aside from domestic demand, China is also one of the key markets for lithium exports from major producing countries like Australia and Chile. Australia is the world’s largest producer of lithium, and China is its biggest customer, accounting for around 40% of Australia’s lithium exports in recent years.

So, if one believes that China will continue to grow as the second-largest economy, here are three of the best lithium stocks for investors to consider.

Albemarle (ALB)

Albemarle (NYSE: ALB ) is a leader in the lithium sector. If investors want to put their money into what I consider a “blue-chip” option in the lithium market, then ALB could tick that box and many more. In 2023, ALB reported significant results, with net sales reaching $9.62 billion , marking the highest in the company’s history and indicating a 31% increase from the previous year.

For 2024, ALB has outlined a comprehensive plan focusing on growth preservation and cost optimization. The company plans to reduce its capital expenditures from $1.6 billion to $1.8 billion, down from approximately $2.1 billion in 2023. This adjustment reflects a strategic re-phasing of larger projects. Additionally, ALB aims to reduce costs by approximately $95 million annually. The company expects to realize more than $50 million of these cost savings in 2024.

ALB’s free cash flow then is expected to increase, which could lead to higher shareholder equity, dividends, and share repurchases in the future. You can see why this made the list of the best lithium stocks to buy.

Arcadium Lithium (ALTM)

Arcadium Lithium (NYSE: ALTM ) has production capacity in Argentina, China, and Quebec, and it aims to substantially increase lithium production.

ALTM’s valuation is significantly better than ALB’s, in my opinion, but one misses out on the stability and quality that ALB offers. Still, it’s worth considering, especially if capital appreciation is at the top of one’s priorities.

Livent, part of the newly formed ALTM as part of a merger , reported Q4 revenue of $182 million with an adjusted EBITDA of $91 million, maintaining a 50% EBITDA margin despite flat sales volumes and lower average realized prices across lithium products. For the full year, Livent’s revenue hit $883 million with adjusted EBITDA at $503 million, marking significant year-over-year growth. Allkem, merging into ALTM, saw its Olaroz carbonate facility generating $96 million in revenue for Q4 and $511 million for the full year.

Looking ahead to 2024, ALTM anticipates higher overall volumes with a 40% increase in combined lithium hydroxide and lithium carbonate sales, offset by lower spodumene concentrate sales. The company projects a range of financial outcomes based on lithium market prices, expecting revenue between $1.25 billion and $1.9 billion, with adjusted EBITDA ranging from $420 million to $1 billion.

Sociedad Quimica y Minera (SQM)

Sociedad Quimica y Minera (NYSE: SQM ) has faced challenges with lithium price weakness but is showing signs of recovery.

I think that U.S. investors can benefit substantially by owning international and emerging market stocks in their portfolios. SQM works in that regard, as one can benefit from the power of diversification and potentially improve their overall total returns.

In 2023, SQM reported a net income of $2.01 billion , down from $3.91 billion the previous year, reflecting challenges in the lithium market. Analysts currently rate SQM stock as a “Buy,” forecasting a 12-month price target of $67.8, which represents a 37.81% upside from its recent price.

For 2024, SQM plans to moderate its sales volume growth to a midpoint of 7.5%, a strategy possibly aimed at navigating the lithium market’s volatility and aligning with demand growth expectations.

SQM in my opinion could be an underappreciated option and one of the best lithium stocks to buy.

On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .

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