In the first half of 2023, the performances of the larger lithium producers -- this article's focus -- and the junior miners were all over the map. Some turned in strong performances and beat the S&P 500 index, which returned 16.9% over this period. Others had meager gains or losses.
Long-term investors shouldn't give too much weight to shorter-term stock performances, which are heavily influenced by broader market dynamics. Rather, they should focus on how well a company's business is performing and its growth prospects.
While lithium prices have declined since hitting all-time highs late last year, the supply-demand picture still looks favorable for producers over at least the medium term, and perhaps longer. The primary driver behind the powerful demand for lithium is the rapidly increasing adoption of electric vehicles (EVs), which are powered by lithium-ion batteries.
Lithium stocks ranked by first-half 2023 performance
Company | Market Cap | Forward P/E | Wall Street's Projected 5-Year Annualized EPS Growth | First-Half 2023 Return | 3-Year Return | 10-Year Return |
|---|---|---|---|---|---|---|
| Livent(NYSE: LTHM) | $5.1 billion | 13.4 | 30.3% | 38.1% | 356% | N/A* |
| Albemarle (NYSE: ALB) | $28.1 billion | 12.6 | (0.4%) | 3.2% | 212% | 325% |
| Sociedad Quimica y Minera (NYSE: SQM) | $22.7 billion | 5.8 | (12.6%) | (4.7%) | 241% | 229% |
S&P 500 | N/A | N/A | N/A | 16.9% | 44.8% | 222% |
Data sources: Yahoo! Finance and YCharts. Data to July 10, 2023 except for first-half 2023 performance. P/E = price-to-earnings ratio. EPS = earnings per share. Boldfaced returns have beaten the S&P 500. *Shares have only traded since late 2018.
1. Livent: Shares were already outperforming in 2023 before the Allkem merger announcement
Livent is a U.S.-based pure play on lithium. One big thing to like about the company is that it owns what's currently its sole source of lithium, the Salar del Hombre Muerto salt flat in Argentina. Neither SQM nor Albemarle owns their largest lithium source, the Salar de Atacama salt flat, which is owned by the Chilean government.
Livent stock was already outperforming the market and the other major lithium players in 2023 when the company announced on May 10 that it planned to merge with Australia-based lithium miner Allkem. It had been up 21.9% for the year before the announcement, which is attributable to Livent's recent strong financial performance and investor enthusiasm about its capacity expansion projects.
Investors drove Livent stock up more than 5% following the news of the merger, which is expected to close by year-end. The two companies forecast the combined company will have the world's third-largest lithium production capacity by 2027, behind Albemarle and SQM. As I previously wrote about the combo's synergy, "Livent's strengths are its technical and commercial capabilities and long-standing customer relationships, while Allkem contributes a significant growth pipeline, which has been Livent's main weakness."
2. Albemarle: Powerful recent results, but falling lithium prices, the Chilean nationalization news, and a 2023 guidance cut weighed on shares
Albemarle has three segments, with its energy storage business (which sells lithium for EV batteries and energy storage products) the largest, accounting for 75% of its revenue in the first quarter. Its two other segments are specialties (which includes some lithium sales, but for specialty uses, such as pharmaceuticals and industrial) and Ketjen, which is its catalysts business.
Albemarle has lithium brine and lithium hard-rock mining assets across the globe, with its largest source the Salar de Atacama salt flat in Chile. The company has been steadily expanding its production capacity and has several expansion projects in the works.
Albemarle has posted powerful recent quarterly financial results, but several factors have weighed on the stock in 2023. These include lithium prices falling from their all-time peaks reached at the end of last year, April's news that the president of Chile would like to nationalize the country's lithium resources, and Albemarle's May cuts to its 2023 annual guidance.
3. SQM: Falling lithium prices, weaker-than-expected Q1 results, and the Chilean nationalization news weighed on shares
Like Albemarle, SQM isn't a pure play on lithium, though its lithium business is its largest. In the first quarter, its lithium segment's revenue accounted for 73% of total revenue. Its other businesses are specialty plant nutrition, iodine, potassium, and industrial chemicals.
Unlike Livent and Albemarle, which turned in strong Q1 results, SQM's Q1 results were disappointing. Its lithium segment's revenue grew by only 14% year over year, compared with Albemarle's energy storage segment's revenue soaring 393% and Livent's lithium revenue (which is the same as its total revenue) surging 77%. SQM's adjusted earnings per share fell 6% year over year, while Livent's and Albemarle's adjusted EPS rocketed 186% and 334%, respectively.
Moreover, SQM stock dropped a whopping 18.6% on the Chilean lithium industry nationalization news, compared with Albemarle stock's 10% decline. This is likely because SQM is headquartered in Chile and probably obtains a larger percentage of its total lithium from the Salar de Atacama in Chile than does Albemarle.
Best lithium stock to consider buying in 2023?
Livent stock currently looks like the best bet of the three lithium stocks discussed in this article for the following reasons: The company's pending merger with Allkem seems quite synergistic, its earnings are forecast to grow at an average annual rate of 30% over the next five years, it doesn't depend on Chile for its lithium sourcing, it owns its Argentina lithium source, and it's based in the United States, which makes it lower-risk than SQM from currency and political standpoints.
Albemarle stock is also worth watching and considering buying.
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Beth McKenna 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.
