Lithium is a chemical element used in rechargeable lithium-ion batteries that power smartphones, laptops and electric vehicles (EVs). So it's fair to say lithium–a soft, silvery-white alkali metal–is ubiquitous.
That's to say nothing of lithium's large-scale use in electricity networks and wind turbines.
It's also fair to say the price of lithium has been extremely volatile, rising as high as $80,000 per ton in December 2022 but plunging to $13,000 by January 2024.
Supply from new projects added to historically high inventory volumes, and demand simply didn't meet forecasts.
Lower prices then led to the shutdown of lithium mining projects as the market continued to adjust to changing public- and private-sector priorities.
Is it time to buy lithium stocks?
But Citibank analyst Kate McCutcheon sees evidence the lithium market has bottomed, citing forecasts for production growth of 30% to 50% at Contemporary Amperex Technology, the world's largest battery manufacturer, and 50% to 100% at BYD, the China-based EV maker backed by Warren Buffett's Berkshire Hathaway (BRK.B).
McCutcheon also says a strong battery manufacturing orderbook in the last three months of 2024 should flow through to the first three months of 2025. And major manufacturers appear to be sustaining full production schedules during the Chinese New Year period, perhaps to get ahead of potential Trump tariffs.
So supply is coming back. And, according to Statista, global demand for lithium will surge to 2.5 million metric tons by 2030, up from 292,000 in 2020. Clearly, it won't be a straight line higher.
But, based on recent price action and long-term trends, perhaps now is an opportune time to identify the best lithium stocks to buy.
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Albemarle
Founded in 1887, Albemarle Corporation (ALB) is the world's leading lithium producer, with operations in the U.S., Australia and Chile.
Lithium is not Albemarle's only focus. About 26% of its revenue comes from other markets. The specialties segment makes bromine-based products for flame retardants. Then there's the Ketjen business, which produces chemicals to improve fuel efficiency and reduce pollution.
Still, the green energy stock has faced major headwinds because of the steep decline in lithium prices. Net sales dropped 41% in the third quarter to $1.355 billion, but a net loss of $1.069 billion was mostly due to restructuring efforts.
Albemarle's balance sheet is solid, with $1.7 billion in cash, a $1.5 billion revolving credit facility and $223 million in additional credit available. Total debt is about $3.6 billion.
Even as it cuts back on costs and capital expenditures, Albemarle continues to focus on innovation.
Investments in materials research and advanced process development remain key to its strategy. This will be critical for success in the EV market, which requires highly efficient systems.
Success here will validate ALB's case as one of the best lithium stocks to buy.
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Sociedad Química y Minera de Chile
Sociedad Química y Minera de Chile (SQM) mines a large amount of its lithium from the Salar de Atacama region in northern Chile.
Lithium ore from this project is characterized by high concentrations, ranging from 1,800 to 2,700 parts per million. This allows SQM to extract lithium more cost-effectively.
In May 2024, SQM entered a long-term partnership with Chile's state-owned copper company, Codelco, under which it will manage lithium production in the Salar de Atacama from 2025 through 2060.
The partnership aims to produce an additional 300,000 tons of lithium carbonate equivalent between 2025 and 2030 and maintain annual production levels of 280,000 to 300,000 tons from 2031 onward.
Lithium represents about 70% of SQM's revenue. As for the remainder, it is made up of commodities like sodium potassium nitrate, iodine and specialty fertilizers.
For the three months ending September 30, 2024, the company reported $1.08 billion in revenue, a 41.5% drop year over year. Net income also fell by 73% to $131.4 million.
Despite these problems, Citi analyst McCutcheon remains bullish on SQM because of the expected growth in battery demand for 2025.
The analyst's price target for one of the best lithium stocks to buy right now is $60, 54% upside from the current share price of $39.
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Rio Tinto
Rio Tinto (RIO) is one of the biggest commodities companies in the world, with a diverse production profile that includes copper, aluminum, diamonds, gold and iron ore.
For the past few years, the company has been investing more in the lithium market. In October acquired Arcadium Lithium, a company formed from the 2024 merger of Livent and Allkem.
Arcadium brings lithium and brine operations located in Argentina, Australia and Japan to Rio Tinto's portfolio.
"This is a counter-cyclical expansion aligned with our disciplined capital allocation framework," said CEO Jakob Stausholm about the deal, noting that it increases Rio Tinto's "exposure to a high-growth, attractive market at the right point in the cycle."
For the first half of 2024, Rio Tinto reported revenue of $26.8 billion, up slightly over the past year, and profit of $5.8 billion. Rio Tinto stock also pays a healthy dividend, with a current yield greater than 7%.
Scale being an important factor for efficient operations in the metals and mining industry, we could see increased merger-and-acquisition activity in the coming years. Last year, for example, Glencore explored a potential merger with Rio Tinto.
Talks fell through, but the potential for significant deals is another factor to consider when it comes to the best lithium stocks to buy.
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Global X Lithium & Battery Tech ETF
Lithium prices and even the best lithium stocks to buy are going to be volatile. One way to mitigate the impact of any stock-specific volatility is to buy an exchange-traded fund (ETF) such as the Lithium & Battery Tech ETF (LIT).
The ETF's sponsor, Global X, specializes in ETFs focused on areas like disruptive technologies, equity income, and commodities.
A diverse portfolio features companies across the lithium lifecycle, including miners, refiners and battery producers. Top holdings include industry leaders like Albemarle as well as Tesla (TSLA) and Panasonic Holdings.
LIT also provides international exposure, with 40.1% of its allocation in China, 25.5% in the U.S. and smaller portions in South Korea, Japan and Australia, ranging between 8.3% and 9.8%.
The ETF's expense ratio is 0.75%, and its net assets total $1.07 billion. LIT is a solid, cost-effective and potentially more stable option in lieu of the best lithium stocks to buy.
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