In this article, we discuss the 10 best lithium and phosphate stocks to buy now. If you want to skip our detailed analysis of these stocks, go directly to the 5 Best Lithium and Phosphate Stocks to Buy Now.
The global efforts towards decarbonization have accelerated in the past few years with the United States and China, two of the largest manufacturing countries in the world, incentivizing the production and sale of electric vehicles and clean energy equipment. Nearly all commercial battery-based energy solutions make use of lithium compounds. According to the US Geological Survey, more than 70% of the total lithium production in the world is geared towards batteries. Since the supply of the precious metal is finite, the prices of the resource have skyrocketed.
Some of the biggest names in the lithium business presently include Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO), among others. Tesla, Inc. (NASDAQ: TSLA) chief Elon Musk, one of the richest men in the world, said last month that the company, the largest electric vehicle manufacturer in the world, would be making a long-term shift to lithium-iron-phosphate cells for use in EVs and energy storage, affirming his bullish view on the lithium industry.
The move also addresses questions about the use of nickel in EV batteries that have led to fire-safety concerns. A shift to iron, as signaled by Musk, could hit Chinese battery firms since nickel-based batteries are mostly manufactured in China. The use of lithium in EV batteries, though, remains an area that both the US and China seem to agree on, at least for now. According to a report by credit rating agency Fitch, worldwide lithium production is expected to triple from 442,000 tonnes in 2020 to 1.5 million tonnes by 2030.
The dramatic shift towards electric vehicles in recent years has disrupted other sectors of the economy as well, including the finance world. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by more than 115 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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Our Methodology
With this context in mind, here is our list of the 10 best lithium and phosphate stocks to buy now. These were ranked keeping in mind analyst ratings, basic business fundamentals, and hedge fund sentiment.
Best Lithium and Phosphate Stocks to Buy Now
10. Lithium Americas Corp. (NYSE: LAC)
Number of Hedge Fund Holders: N/A
Lithium Americas Corp. (NYSE: LAC) is a Canadian resources company that primarily explores for lithium deposits. It is placed tenth on our list of 10 best lithium and phosphate stocks to buy now. In earnings results for the second quarter, posted on August 5, the firm reported earnings per share of -0.16, missing market estimates by $0.08. The cash and cash equivalents at the end of the first quarter were $505 million. On May 28, the share price of the firm jumped over 2% after it announced an expansion at a resource project in Argentina.
In March, investment advisory B Riley initiated coverage of Lithium Americas Corp. (NYSE: LAC) stock with a Buy rating and a price target of $25, noting that the firm was nearing completion of a lithium project and developing another long-term resource in the US.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Axel Capital Management is a leading shareholder in Lithium Americas Corp. (NYSE: LAC) with 830,000 shares worth more than $13 million.
Just like Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO), Lithium Americas Corp. (NYSE: LAC) is one of the best lithium and phosphate stocks to buy now.
In its Q1 2021 investor letter, Massif Capital, an asset management firm, highlighted a few stocks and Lithium Americas Corp. (NYSE: LAC) was one of them. Here is what the fund said:
“Lithium Americas: The volatility noted above in LAC has resulted in solid returns via our options trades around our core equity position. At the current time, we are short calls on LAC, as we have done multiple times throughout the position’s life, expiring on May 21, 2021, at a $17.5 and $22.5 strike price. The volume of contracts sold at each strike corresponds to the size of the equity position we want should the calls expire in the money, and the underlying equity gets called away from us. The thought process behind this trade construction is that if we know the size of the position we want at a particular price point, there is no reason not to accumulate additional returns by pre-selling the stock we would have sold anyway.
High levels of volatility positively impact the price of options, increasing the premium we can earn from selling covered calls. To date, we have sold covered calls on LAC that have expired worthless four times, yielding a roughly 7% return on the equity position’s current value or 71bps for the portfolio overall. The outstanding covered calls appear to be trending towards a similar worthless expiration. If they do, the covered call trades on LAC will result in us owning the shares with committed capital of -$0.28 per share.
Although we believe in the fullness of time LAC warrants a $30+ valuation, the prices achieved in early January of this year were not justified by the underlying fundamentals. Some will argue we should have sold down our position. We had already established our option positions and believe LAC is an emerging major in the lithium mining industry. Thus, we decided to maintain the position unchanged. Although still relatively high, the current $15 per share valuation is not crazy compared to where we think the firm should be trading based on fundamentals, so we are no longer overly concerned with the position as is.
LAC management also took advantage of the volatility issuing stock on January 22 for $22 a share. The ~$400 million in proceeds will be used to develop Thacker Pass, the US-based clay lithium deposit, which will likely be the largest producing Lithium mine in America when turned on. In our opinion, the stock issuance could not have come at a better time. LAC management has advanced the project through various development stages (de-risking), but with the share issuance, they have significantly reduced the need to bring in an outside partner to develop the asset as the first phase of the project is expected to cost roughly $581 million. After-tax and at an 8% discount rate, the Thacker Pass project’s present value is approximately $2.6 billion (the firm’s current market capitalization is $1.5 billion). Although the share issuance was dilutive, increasing the total shares by 17%, we believe it will, in the long run, prove a forward-looking, value-additive decision by management.
The lithium market remains an area of interest and focus for us. This reflects our belief that the most exciting investment opportunities to capture secular trends in EV’s and batteries are found upstream in the mining industry. It is also a reflection that there is a greater diversity of lithium investment opportunities relative to other battery metals.”
9. Sociedad Química y Minera de Chile S.A. (NYSE: SQM)
Number of Hedge Fund Holders: 16
Sociedad Química y Minera de Chile S.A. (NYSE: SQM) is a Chilean firm that produces and distributes lithium derivatives. It is ranked ninth on our list of 10 best lithium and phosphate stocks to buy now. On July 16, the company announced that it had received approval from authorities in Australia to build a lithium hydroxide refinery. The project, once completed, would be capable of producing 50,000 metric tons of battery-grade lithium hydroxide. The production on the site is expected to commence by 2024.
On May 20, investment advisory Scotiabank upgraded Sociedad Química y Minera de Chile S.A. (NYSE: SQM) stock to Sector Perform from Underperform with a price target of $42. Ben Isaacson, an analyst at the firm, issued the ratings update.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in Sociedad Química y Minera de Chile S.A. (NYSE: SQM) with 718,156 shares worth more than $38 million.
Alongside Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO), Sociedad Química y Minera de Chile S.A. (NYSE: SQM) is one of the best lithium and phosphate stocks to buy now.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Sociedad Química y Minera de Chile S.A. (NYSE: SQM) was one of them. Here is what the fund said:
“Among materials names in our structural bucket, we sold SQM as the stock hit our price target. Lithium prices remain at levels well below previous highs and while we expect they may reach higher levels in the future; high pricing likely encourages additional supply onto the market.”
8. Livent Corporation (NYSE: LTHM)
Number of Hedge Fund Holders: 22
Livent Corporation (NYSE: LTHM) is placed eighth on our list of 10 best lithium and phosphate stocks to buy now. The company is based in Pennsylvania. It makes and sells lithium compounds. The company posted earnings for the second quarter on August 5, reporting earnings per share of $0.04, beating market predictions by $0.02. The revenue over the period was $102 million, up 57% compared to the revenue over the same period last year and beating market estimates by $14.4 million.
In April, investment advisory Evercore upgraded Livent Corporation (NYSE: LTHM) stock to Outperform from In Line and raised the price target to $22 from $20, noting the positive developments in the lithium industry as a whole in terms of basic fundamentals.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Joho Capital is a leading shareholder in Livent Corporation (NYSE: LTHM) with 3.7 million shares worth more than $65 million.
In addition to Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO), Livent Corporation (NYSE: LTHM) is one of the best lithium and phosphate stocks to buy now.
7. Energizer Holdings, Inc. (NYSE: ENR)
Number of Hedge Fund Holders: 22
Energizer Holdings, Inc. (NYSE: ENR) is ranked seventh on our list of 10 best lithium and phosphate stocks to buy now. The company markets different types of batteries and is headquartered in Missouri. On May 10, the firm posted earnings for the second fiscal quarter, reporting earnings per share of $0.77, beating market estimates by $0.17. The revenue over the period was $685 million, up 16% compared to the revenue over the same period last year and beating market predictions by $59 million.
On May 11, investment advisory Morgan Stanley reiterated an Overweight rating on Energizer Holdings, Inc. (NYSE: ENR) stock and raised the price target to $56 from $54, noting the large earnings beat for the firm in the second fiscal quarter.
At the end of the first quarter of 2021, 22 hedge funds in the database of Insider Monkey held stakes worth $237 million in Energizer Holdings, Inc. (NYSE: ENR).
Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO) are some of the best lithium and phosphate stocks to buy now, just like Energizer Holdings, Inc. (NYSE: ENR).
6. QuantumScape Corporation (NYSE: QS)
Number of Hedge Fund Holders: 29
QuantumScape Corporation (NYSE: QS) is a California-based company that develops and sells solid-state lithium batteries that are used in electric vehicles. It is placed sixth on our list of 10 best lithium and phosphate stocks to buy now. The stock has been one of the most high-volume ones on the market in recent weeks. On August 2, the share price soared close to 3.5%, stretching year-to-date gains to 70%, in a high-volume trading day for the company. The firm also stands to gain as EV deliveries improve in the post-pandemic economy.
On July 21, investment advisory JPMorgan initiated coverage of QuantumScape Corporation (NYSE: QS) stock with a Neutral rating and a price target of $35, underlining that the firm would play a vital role in the development of solid-state batteries for the EV industry in the near future.
At the end of the first quarter of 2021, 29 hedge funds in the database of Insider Monkey held stakes worth $534 million in QuantumScape Corporation (NYSE: QS).
Tesla, Inc. (NASDAQ: TSLA), Johnson Controls International plc (NYSE: JCI), and NIO Inc. (NYSE: NIO) are some of the best lithium and phosphate stocks to buy now, in addition to QuantumScape Corporation (NYSE: QS).
In its Q1 2021 investor letter, Baron Funds, an asset management firm, highlighted a few stocks and QuantumScape Corporation (NYSE: QS) was one of them. Here is what the fund said:
“QuantumScape Corporation is an early-stage developer of solid-state battery technology for electric vehicles aimed at improving key aspects of batteries, including safety, charging times, energy density, and cost. The company went public via a SPAC in November. After rapid appreciation, the stock came under pressure when the company raised additional capital to help accelerate its commercialization process. We exited our small position, as described below.
We sold QuantumScape Corporation, an early-stage solid-state electric vehicle battery innovator, because it was an undersized position with an ambitious valuation. We will continue to monitor QuantumScape’s developments and may revisit the company as an investment at a future point in time. “
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Disclosure. None. 10 Best Lithium and Phosphate Stocks to Buy Now is originally published on Insider Monkey.
