Lithium stocks are under pressure in 2023, and the reason is simple — supply and demand. As a way of meeting the anticipated need of electric vehicle (EV) manufacturers, miners flooded the market with lithium in 2022 and early 2023. That put investors on the hunt for cheap lithium stocks.
But demand for EVs, particularly in China, has not kept up with supply. And the price of lithium has tumbled along with lithium stocks.
However, the long-term outlook for lithium is still strong. That’s because, in addition to being the primary component in lithium-ion batteries, the metal is also needed in solar, nuclear and other applications.
Even with the expected growth in this sector, you don’t want to be chasing overvalued stocks higher. Fortunately, there is still an opportunity to get in on many of these stocks while they are still “cheap,” which means they are currently undervalued for one or more reasons.
For some of the stocks on this list, one reason is that the company is not yet turning a profit. This adds a level of risk to your investment. However, in many cases, these cheap lithium stocks still present investors with attractive fundamentals that should give you a level of confidence.
Albemarle (ALB)
Albemarle (NYSE:ALB) is one of the safest choices in the lithium sector. It also fits into the category of cheap lithium stocks trading at just 8.7x forward earnings.
One of the first things fundamental-driven investors will notice about Albemarle is the company’s impressive revenue and earnings growth. In the last several quarters, the company has generated double-digit year-over-year gains on the top and bottom lines. In fact, the $17.65 in earnings per share Albemarle has posted in the first two quarters of 2023 is over 200% higher than in the same period in 2022.
Traders are certainly taking notice. ALB stock is up over 16% in the last three months. And with analysts giving the stock a 39% upside from its current level, this may be the time for long-term investors to climb on board.
And current price targets may not be fully pricing in the opportunity Albemarle has with a new contract with Ford Motor (NYSE:F). Starting in 2026, the company will provide Ford with more than 100,000 metric tons of battery-grade lithium hydroxide for EV batteries.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) is a developmental-stage lithium company that has major operations in the renowned Carolina Tin Spodumene Belt of North Carolina. This is positioning Piedmont to profit as a low-cost producer of lithium hydroxide.
As demand for lithium soars, the Biden administration is incentivizing companies to onshore their operations in the United States. In fact, the company is partnering with Tesla (NASDAQ:TSLA) to deliver approximately 125,000 metric tons of lithium between now and the end of 2025.
That said, Piedmont is still a pre-revenue company. But that should be changing, and when it does, analysts also expect the company to post profits. In fact, analysts are forecasting over 170% earnings growth between 2023 and the end of 2024.
And yet, PLL stock is still trading near the lower end of its 52-week range. This is still a speculative stock, even with a share price over $50. But with the upside potential, it’s still one of the cheap lithium stocks you can buy.
Lithium Americas (LAC)
The first two stocks on this list of cheap lithium stocks highlight the importance of partnerships to the success of lithium companies. The next company on the list is Lithium Americas (NYSE:LAC) which recently signed a $650 million contract with General Motors (NYSE:GM).
In February 2023, the company ended a lengthy court trial with a favorable Record of Decision (ROD) ruling for its Thacker Pass Project. Lithium Americas expects to extract up to 80,000 tonnes of the area’s estimated 13.7 million tonnes of lithium carbonate per year. And company data forecasts this project as having an after-tax net present value (NPV) of nearly $5 billion.
Lithium Americas doesn’t expect mining operations to begin at Thacker Pass until 2026. However, it does plan to begin mining in Argentina later this year. At that time, the company should begin generating revenue and profits.
Analysts currently give LAC stock a Buy rating with a $35 price target that represents an 81% gain from the stock’s current price.
Livent (LTHM)
Continuing the onshoring theme is Livent (NYSE:LTHM). The Philadelphia-based company does not mine lithium, but rather it combines lithium with other chemicals. And it has a lithium hydroxide plant in North Carolina. In May 2023, Livent entered into a $10.6 billion all-stock merger with Allkem (OTCMKTS:OROCF). The combined companies will represent the third-largest lithium producer in the world.
Livent has only been a publicly traded company since 2018. However, like Albemarle, investors should have no concerns about revenue or earnings. Both have grown sequentially in the last 10 quarters, with double-digit year-over-year growth in both.
Yet, investors can still pick up LTHM shares at a fair price of around $23 per share. I say that based on the stock’s forward price-to-earnings (P/E) ratio of just 11x and the opinion of analysts who give the stock a consensus price target of $33.01 — 29% higher than the price as of this writing.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is another large-cap company that is a solid player in the lithium sector. The company is the world’s second-largest lithium producer, and it continues to lock up sizable contracts. Recently, those wins included contracts with Ford Motor and LG Energy.
With a P/E ratio of just over 5x, SQM stock fits in with the other cheap lithium stocks in this article. However, in its most recent quarter, the company missed analysts’ expectations on the top and bottom lines. And earnings are expected to decline between now and the end of 2024.
That’s enough to justify the consensus Hold rating on SQM stock. But analysts still suggest that the stock price will grow 23% from its current price. And the company pays a dividend that currently has a yield of 2.83%.
American Lithium (AMLI)
To this point, I’ve focused on some of the rock-solid names in the lithium sector that happen to show some signs of being fundamentally undervalued. The last two cheap lithium stocks are that way largely because of their penny stock status.
The first of these is American Lithium (NASDAQ:AMLI). This is a small-cap company that is still in the developmental stage. However, the company has two advanced-stage lithium projects: one in North America and one in South America. The company projects the latter to be one of the largest lithium deposits in the world.
That will be a boon to the company’s revenue but not so much for the earnings outlook. The company isn’t expected to be profitable in the next five years.
That explains the company’s penny stock status. But that doesn’t mean it needs to stay a penny stock. Analysts agree and give the AMLI stock a 12-month consensus price target of $5, which sets up an opportunity for risk-tolerant investors.
Ganfeng Lithium Group (GNENF)
If you’re investing in lithium stocks, you shouldn’t ignore the opportunity in China. That’s the case for Ganfeng Lithium Group (OTCMKTS:GNENF), China’s largest producer of base materials for lithium battery manufacturing.
The company covers all areas of lithium production, including refining, processing and battery manufacturing. As evidence of that, the company plans to generate 600,000 tonnes of lithium carbonate annually, representing a five-fold increase from 2021 levels.
And one of the areas the company is targeting is China’s EV market. To that end, Ganfeng plans to invest approximately $360 million to build a lithium battery project in Xiangyang. This will position the company to come out ahead no matter which EV company comes out on top in the race to mainstream EV adoption.
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On the date of publication, Chris Markoch 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.