Lithium has become a hot commodity with the growing adoption of electric vehicles (EVs). While EV sales may have seen a slowdown, the future will be all about EVs. And, this is the time that lithium demand will soar. Due to the dip in EV sales, the supply of lithium is higher than its demand, leading to a subsequent drop in lithium prices.
However, investors and automakers are optimistic about the future of EVs, which means an exceptional year for lithium stocks is likely. Therefore, let’s take a look at the best lithium stocks to buy now.
Lithium Americas (LAC)
Canadian-based Lithium Americas (NYSE:LAC) is one of the best lithium stocks to own. The company has an impressive asset base which will lead to strong future cash flows. LAC stock has already delivered over 300% returns in the past five years. Yet, the dip in the past year brought it down 33% in the year, trading now at $5.52.
The company’s huge catalyst the Thacker Pass project, the largest lithium resource with after-tax net present value is $5.7 billion. In fact, the Thacker Pass project alone can generate significant revenue for Lithium Americas. But LAC owns other assets as well. While the company isn’t generating revenue presently, its future looks bright. Further, the company is building extraction sites in Argentina.
Additionally, financing won’t be a problem for it since it already has an agreement with General Motors (NYSE:GM) for 10 years. This will provide steady revenue once the production begins. Also, with its strong balance sheet, it ended Q3 with $275 million in cash and only $47.3 million in debt. This shows it has enough liquidity to continue investing in the assets.
If you look at the long-term picture, Lithium Americas could be one of the best lithium companies out there. The stock can double from the current level.
Albemarle Corporation (ALB)
Despite the drop in lithium prices, Albemarle Corporation (NYSE:ALB) has been able to sustain itself with low debt and steady cash flow. It manufactures lithium batteries for Panasonic Holdings (OTCMKTS:PCRFY) which ensures steady revenue flow.
The company aims to achieve sales growth ranging between 30% to 35% even if lithium prices remain at a low. It has a solid long-term plan and will remain relevant for the next five years. ALB aims to increase the lithium conversion capacity to 600ktpa by the end of 2027. This marks a significant capacity increase from current levels.
Additionally, it could lead to steady revenue and impressive growth in cash flow. As the demand for lithium improves, we could see Albemarle Corporation performing better than competitors. Once capacity has expanded, ALB should be able to decrease capital spending. And this is when the margins will significantly improve.
ALB stock is down 48% in the past year due to the extreme volatility in lithium prices. Therefore, this dip is a solid chance to buy the stock. Currently, it is exchanging hands for $126 and is much lower than the 52-week high of $293. Also, the stock enjoys a dividend yield of 1.27% and has paid a quarterly dividend of $0.40. Expect steady dividend growth over the next five years.
Livent Corp. (LTHM)
Livent Corp. (NYSE:LTHM) doesn’t have a long history of operating as a lithium mining company yet, and it has been through a lot due to supply chain issues. However, the company saw an improvement in sales as lithium prices soared, positively impacting profits. While Livent Corp. doesn’t have a lot of debt, which can work in its favor in the long term, a catalyst that can boost the stock.
In the process of merging with Allkem, this can make it a lithium powerhouse valued at $10.6 billion. I am very optimistic about this merger as it can create the largest lithium deposit base in the world. Since both companies have assets across different geographical locations, it will benefit in terms of economies of scale. Further, both companies will be able to merge their expertise in mining.
Livent Corp. reported strong financials for Q3 of 2023 with $211 million in revenue and a cash balance of $274 million. It aims to spend over $1 billion to expand the capacity in Argentina by 2026.
The pullback in lithium prices is temporary, and once the demand picks up, we could see Livent Corp.’s financials improve. Trading at $16.51, the stock looks extremely cheap to me, and as the demand for lithium improves, it could double.
On the date of publication, Vandita Jadeja 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.