4. Lithium Americas Corp. (NYSE:LAC)
Number of Hedge Fund Holders: 14
Upside Potential as of January 27: 61.18%
Average Price Target Based on Analyst Ratings: $35.75
Lithium Americas Corp. (NYSE:LAC) was incorporated in 2007 and is headquartered in Vancouver, Canada. It is a resource company that explores for lithium deposits. On December 20, Lithium Americas Corp. (NYSE:LAC) announced that it would acquire Arena Minerals for an implied equity value of $227 million, in a move to enhance its presence in the Pastos Grandes basin in Argentina. It is one of the best battery stocks to consider.
On January 16, National Bank analyst Lola Aganga maintained an Outperform rating on Lithium Americas Corp. (NYSE:LAC) but lowered the firm’s price target on the shares to $38.50 from $42.50. The new target reflects updated commodity price estimates, but Lithium Americas Corp. (NYSE:LAC) is still considered a top choice as it is fully financed and set to become a near-term producer of lithium. It is also progressing with the largest new brine operation in the last decade and is on track to begin production in the first half of 2023, the analyst told investors.
According to Insider Monkey’s data, 14 hedge funds were bullish on Lithium Americas Corp. (NYSE:LAC) at the end of September 2022, up from 9 funds in the last quarter. Jay Chen’s Himension Capital is the biggest stakeholder of the company, with 3.26 million shares worth $85.6 million.
Here is what Massif Capital has to say about Lithium Americas Corp. (NYSE:LAC) in their Q1 2021 investor letter:
“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 of 71 bps 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.”
