Financial-market fads come and go, but the need for minerals to power the world's new energy vehicles won't vanish anytime soon. Thus, as short-term traders obsess over artificial intelligence and the metaverse, long-term investors can turn to established lithium-focused companies for potentially powerful returns down the road.
Indeed, the time is right for a prime lithium pick in July. Lithium is hardly mentioned in the financial headlines anymore -- and that's when savvy investors should pounce on underappreciated growth opportunities. Let's take a closer look at a vehicle-electrification picks-and-shovels investment for H2 2023 and beyond.
Livent stock: A solid choice for lithium-market exposure
While it's certainly not the only way to invest in lithium's future upside, Livent(NYSE: LTHM) stock offers exposure to lithium. Plus, Livent is a well-established company that's been around since 1940, and it has a market cap in the billions. It's not a fly by-night start-up that might fold before the year's over.
Furthermore, Livent is profitable, which differentiates the company from Lithium Americas . Sociedad Química y Minera de Chile (SQM) is also income-positive. But I'm picking a lithium company that consistently beats Wall Street's earnings-per-share (EPS) forecasts, and SQM doesn't fit the bill.
That leaves Livent and Albemarle, which also meets those criteria. Albemarle and Livent are fairly similar in terms of valuation metrics, though Albermarle does appear to offer discounts when measured by forward price-to-book ratio and P/E ratio. . On the other hand, if you're looking for a growth story during a lithium bull market, Livent looks more attractive. As it turns out, Albermarle's forecasted earnings growth/contraction of 5% in 2023 and -1.47% in 2024 pale in comparison to Livent's anticipated earnings expansion of 46% this year and 18% next year.
Toyota is watching... and investing
While Livent isn't yet the 800-pound gorilla of the lithium market, it is growing through a planned merger with another lithium chemicals specialist, Australia-based Allkem. The synergy could be powerful. The combined company will be worth an estimated $10.6 billion and will include "geographically adjacent asset portfolios in Argentina and North America."
The newly combined business's name and stock ticker aren't yet known, but it's reasonable to surmise that at least one global automotive giant will take a financial interest in it. I'm referring to Toyota(NYSE: TM), which is a significant (6.16%) Allkem shareholder and is reportedly "quite positive" about the merger.
Moreover, Allkem CEO Martin Pérez de Solay teased a possible deeper tie-in with the Japanese automaker when he stated: "We are all looking forward jointly with them on a larger and deeper business relationship with the Toyota group."
If you're like me, then you don't mind investing in a business when it's undergoing a challenging transitional period. Patience will be key here as lithium prices dropped 76% from November to April so earnings are likely to take a hit in the upcoming quarter. Hence, July could be a time to scale into a position as Livent -- or whatever business emerges from the combo with Allkem -- could be an 800-pound lithium-market gorilla in the making.
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David Moadel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
