We recently compiled a list of the 11 Biggest Lithium Stocks to Buy Right Now. In this article, we are going to take a look at where Arcadium Lithium plc (NYSE:ALTM) stands against the other lithium stocks.
Despite challenges like pricing and demand headwinds in 2023, the U.S. and Canadian lithium sectors are set to make progress in 2024, with several construction projects potentially starting to boost domestic lithium supply. According to an S&P Global report, while the lithium market has seen slow activity and falling prices, especially in Asia, long-term demand fundamentals remain strong due to the global transition toward electric vehicles (EVs) and energy storage.
Even though lithium prices dropped in 2023 after reaching record highs in 2022, the long-term outlook for the EV market remains promising. According to the report, EV sales are expected to reach 30.81 million units by 2027, and lithium prices are expected to stabilize between $20,000 and $25,000 per metric ton in the coming years. Despite the industry’s cyclical nature, current pricing remains strong enough to attract investment, especially with regulatory support driving the EV transition in countries like Canada.
According to industry experts like Rahul Sen Sharma, setbacks are common in large-scale industry transformations, and the lithium market is no exception. Jean-François Béland of Ressources Québec compared lithium’s importance in the 21st century to that of coal and oil in previous eras, which shows the crucial role of lithium in electrifying transportation.
Long-Term Outlook for Lithium
According to the International Energy Agency (IEA), lithium demand is projected to rise tenfold in the Net Zero Emissions scenario and could reach 1,700 kilotonnes (kt). The market is further supported by developments in battery storage, with lithium demand for storage expected to grow more than ten times by 2050.
While alternative technologies like sodium-ion and vanadium flow batteries may slightly impact lithium demand, the metal’s role in battery production remains dominant. Moreover, solid-state batteries could create a new demand for lithium metal by 2040.
On the supply side, lithium production has significantly increased, with current global output at 190 kt, mainly from Australia and Latin American countries like Chile and Argentina. By 2030, global supply is projected to rise to 450 kt in a base scenario, but further investments will be necessary to meet future demand, especially in meeting climate goals.
Dealing With Supply Shortages
According to Benchmark Mineral Intelligence, lithium-ion battery demand is projected to nearly quadruple by 2030, reaching 3.9 terawatt-hours. The market intelligence firm forecasts lithium surplus till 2029, but despite that, the firm says that the supply of environmentally and socially responsible lithium is currently insufficient to meet demand.
Sustainably sourced lithium is not enough to meet growing demand. By 2026, only 45% of lithium demand is expected to be met by recycled or sustainably mined lithium, dropping to 35% by 2030.
In light of that, Direct Lithium Extraction (DLE), is gaining traction as a more efficient and sustainable alternative. According to BloombergNEF, DLE is expected to contribute significantly to lithium supply by 2030 and could potentially rival the output of evaporative methods, if commercialized successfully.
Lithium can be sourced from hard rock deposits like spodumene and lepidolite, as well as from brine. The main challenge with the evaporative method is its slow processing time, taking up to 18 months to extract lithium. On the other hand, DLE can reduce this timeframe to two weeks while using land and water more efficiently. Despite a decline in lithium prices, investments in DLE continue, as it offers faster and more sustainable extraction from brine sources.
According to Benchmark, DLE is a promising technology that could help prevent future lithium supply shortages by efficiently extracting lithium from brines. It is expected to contribute 14% of the global lithium supply by 2035, especially from brines, geothermal, and oil fields. However, DLE faces challenges such as high costs, scalability issues, and inflation, which have increased project expenses.
DLE offers higher recovery rates (80-90%) compared to traditional evaporation methods (20-50%). Major oil companies like Exxon are investing in DLE due to its similarities with oil extraction. Despite its potential, DLE alone won’t solve the lithium market’s structural deficits in the short term.
Our Methodology
For this article, we scoured through ETFs and stock screeners to find the 25 biggest players in the lithium and lithium battery industry that are listed on the NYSE or NASDAQ. We then narrowed down our list to 11 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A person inspecting a lithium-ion battery that is being recycled.
Arcadium Lithium plc (NYSE:ALTM)
Market Capitalization as of September 6: $2.43 billion
Number of Hedge Fund Holders: 19
Arcadium Lithium plc (NYSE:ALTM) is a major player in the lithium industry, formed through the merger of Allkem and Livent. The company operates in several key regions known for lithium production, such as Argentina, Canada, and Western Australia. This geographical spread positions it well to meet the rising global demand for lithium, which is essential for the development of electric vehicle batteries and energy storage solutions.
The company uses several methods to extract lithium, including mining from hard-rock sources, traditional brine extraction, and newer technologies like direct lithium extraction. The company produces several important lithium products, such as lithium hydroxide and lithium carbonate, which are used in high-performance batteries.
On September 5, TipRanks reported that TD Cowen analyst David Deckelbaum reaffirmed a Buy rating on Arcadium Lithium (NYSE:ALTM) with a $6 price target. His positive outlook is based on the company’s strategic decisions, including the suspension of operations at the Mt Cattlin mine due to low spodumene prices, which are not covering operating costs.
Deckelbaum views this move as a strategic adjustment to focus on more profitable areas, which should improve the company’s cash flow and financial stability. He also highlighted the company’s emphasis on vertically integrated carbonate production in Argentina and spodumene production in Canada as key factors supporting the positive forecast.
A total of 27 analysts have covered Arcadium Lithium’s (NYSE:ALTM) stock with a price target of $4.31, which represents a 90.69% upside to the company’s stock price at current levels on September 6.
In the second quarter, 19 hedge funds had stakes in Arcadium Lithium (NYSE:ALTM), at a combined value of nearly $52 million.
First Pacific Advisors stated the following regarding Arcadium Lithium plc (NYSE:ALTM) in its Q2 2024 investor letter:
“Arcadium Lithium plc (NYSE:ALTM) is an integrated, low-cost, well-managed lithium producer formed by the merger of Livent, which the Fund owned, and Allkem in Australia. The merger was completed at the beginning of the year and we received, and decided to hold, shares of Arcadium. The share price has declined because of volatile lithium prices that collapsed from bubbly levels at the beginning of 2023.27 Estimates for electric vehicle production are slowing and capacity got ahead of demand; the industry is now waiting for a supply response.
Arcadium is an unusual investment for us. We normally avoid the commodity and materials sectors, and have kept our position in Arcadium small. But we believe Arcadium has a unique position in an industry with a strong long-term outlook. The company has low-cost production assets, is virtually debt-free, and has considerable capacity additions planned near-term.”
Overall ALTM ranks 7th on our list of the best lithium stocks to buy. While we acknowledge the potential of ALTM as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ALTM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
