Top Stocks for the Lithium Boom
The global lithium space is on fire.
Just in the last six months, as evidenced by the Global X Lithium ETF (NYSE: LIT), it’s up a bit more than 40%. It’s outperforming the S&P (the red line) more than twice over.
There’s a reason Goldman Sachs is calling it “the new gasoline.” And The Economist says it's “the world’s hottest commodity.”
Now, a 40% gain in six months is nothing to sneeze at.
But you can do much better in the lithium space.
For starters, that lithium ETF I mentioned above has three stocks as more than 35% of its holdings:
- FMC Corp. (NYSE: FMC)
- Chemical & Mining Company of Chile (NYSE: SQM); and
- Albemarle Corp. (NYSE: ALB)
And I get why the fund is structured that way. Those three companies are responsible for upwards of 80% of the lithium that comes out of the ground annually.
But lithium is just a tiny fraction of the business that FMC, SQM, and Albemarle do. They are diversified miners.
It’s like investing in Nintendo to profit from Pokemon. People do it, but it’s not really a pure play and it often ends badly. The market erased over $6 billion in market cap from Nintendo as the world learned it only has a small stake in the Pokemon company.
So for the purest lithium gains… you’ll want to invest in a company that explores for or produces lithium as its main business. As far as I can tell, only three of the lithium ETFs 25 holdings are pure-play lithium companies:
- Lithium Americas (TSX: LAC)
- Orocobre (TSX: ORL)
- Bacanora (TSX-V: BCN)
And here’s how those lithium stocks have done over the past six months:
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Lithium Americas is up ~150% and Orocobre is up about 60% — both beating the ETF because they are pure plays. Lithium Americas is advancing a lithium project in Argentina under a JV with SQM. Orocobre is ramping up production at its Salar de Olaroz. Bacanora is trying to produce lithium from clays — rather than from brine or hard rock — and that’s never been done before.
But here’s the thing with those stocks… the market already knows their stories. Lithium Americas has a market capitalization over $200 million. Orocobre’s is over $700 million.
And the world will need more lithium in addition to what they can produce.
In the next 10 years or so, the world will need some three to five times more lithium than was produced in 2015.
There were 1.4 billion smartphones sold last year. 194 million laptops. 320 million tablets.
Electric cars will soon dwarf all of that.
In fact, just the targeted production of Tesla's new Model 3 — 500,000 annually — would consume the world's entire lithium supply.
All of it. None left for Tesla's other models or for any other electric car manufacturers. None left over for phones or laptops like the one I'm writing this on.
It's one of the reasons Tesla has built a lithium-ion battery “Gigafactory.” It just opened last month, and there's been a bit of fanfare surrounding it.
So finding the small, pure-play lithium companies today will put you in the best position to reap the most profits from the lithium that will supply the future.
Here is the chart of Lithium Americas, Bacanora, and Orocobre again… only this time with my top lithium pick added:
It’s gone up several thousand percent in the past six months. And I think it can do it again. It’s putting a project into production in South America, owns the largest lithium land package in Nevada, and has the best management and board I can find in the space.
It also still trades with a tiny market cap of $100 million.
If you’d like to see my full report on the lithium sector, what to avoid, and all the details on my tiny top pick… just click this link.
Call it like you see it,
Nick is the founder and president of the Outsider Club, and the investment director of the thousands-strong stock advisories, Early Advantage and Wall Street Underground. He also heads Nick’s Notebook, a private placement and alert service that has raised tens of millions of dollars of investment capital for resource, energy, cannabis, and medical technology companies. Co-author of two best-selling investment books, including Energy Investing for Dummies, his insights have been shared on news programs and in magazines and newspapers around the world. For more on Nick, take a look at his editor's page.