We recently compiled a list of 10 High Growth Lithium Stocks to Invest In. In this article, we will look at where Sociedad Química y Minera de Chile S.A. (NYSE:SQM) ranks among high growth lithium stocks to invest in.
Lithium Prices Drop but Demand Signals Long-Term Gains
Rio Tinto announced its acquisition of U.S.-based Arcadium for $6.7 billion, positioning itself as the world’s third-largest lithium miner. The deal comes while lithium prices are falling these days, which are driven by oversupply from China and a slowdown in EV sales, which has made lithium miners attractive takeover targets.
Despite current price drops, the company’s CEO is optimistic about long-term lithium demand, a sentiment shared by Frank Nicolich, CRU Group vice president of base and battery metals. In an interview with Julie Hyman and Josh Lipton of Yahoo Finance, Nicolich explained that while prices are low due to oversupply, mining deals like the one mentioned above are long-term investments.
He expects lithium demand to increase three to four times over the next decade as the transition to clean energy accelerates, making substantial new supply essential. Lithium is highly valued for batteries as it offers the right chemical and electrochemical properties. Although sodium-ion technology may eventually be an alternative, lithium remains universally used in all battery chemistries for now.
Regarding future lithium production, Nicolich pointed to Africa, especially the old tin mines, as a significant near-term source. South America remains a major player, while North America and Canada also have promising lithium deposits. However, U.S. production is currently small, with potential for growth if prices rise.
As lithium demand grows, Nicolich expects more acquisitions as miners seek to position themselves for the future. For investors, the lithium market is still developing. While futures markets for lithium are emerging, such as in China and potentially with the CME, investing in lithium is currently best done through miners rather than direct commodity investments.
We mentioned a similar long-term sentiment in our article about the biggest lithium stocks article posted last month. Here is an excerpt from the article:
“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.”
Our Methodology
For this article, we used lithium ETFs to identify nearly 50 stocks and we narrowed our list to 30 companies with significant operations in the lithium and battery market. Next, we chose 10 stocks with double-digit 5-year compound annual growth rates (CAGR) in revenue (at least 10%). Our primary metric for listing the stocks was hedge fund sentiment and for the secondary one, mainly for the stocks not trading on NYSE or NASDAQ, we listed according to their average analyst price target upside. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 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).
Sociedad Química y Minera de Chile S.A. (NYSE:SQM)
5-Year Revenue CAGR: 21.29%
Average Price Target Upside: 24.22%
Number of Hedge Fund Holders: 9
Sociedad Química y Minera de Chile S.A. (NYSE:SQM) is a leading global producer of lithium, iodine, and specialty plant nutrients. The company has exclusive access to rich mineral reserves in Chile’s Atacama Desert, which includes some of the highest concentrations of lithium worldwide. The strategic access allows SQM to play a critical role in the supply chain for EVs, renewable energy storage, and other industries.
With operations in over 100 countries, it has steadily expanded its presence, securing a strong position in the growing green economy. It held an 18% share of the global lithium market in 2023, selling lithium products to 207 customers across 39 countries, especially in Asia. The company has also partnered with Kidman Resources to acquire spodumene resources in Australia, further expanding its lithium operations.
As demand for EVs and renewable energy storage rises, SQM continues to increase its lithium production capacity, aiming for 210,000 metric tons of lithium carbonate by 2024. The company’s diversified portfolio, which includes iodine and plant nutrients, adds to its resilience and positions it for future growth.
In September, SQM’s CEO Ricardo Ramos highlighted a significant development as he announced a partnership with Codelco to extend operations in the Salar de Atacama until 2060. The partnership, which is expected to take effect in 2025, is contingent upon a consultation process with local Atacameño communities to ensure mutual benefits and respect for human rights.
Moreover, in response to long-term industry trends, SQM launched SQM International Lithium to focus on expanding its lithium business beyond Chile. The new venture aims to increase SQM’s production by at least 100,000 metric tons of LCE annually by the end of the decade through partnerships and innovation. It ranks at 6 on our list of high growth lithium stocks.
Overall SQM ranks 6th on our list of high growth lithium stocks to invest in. While we acknowledge the potential of SQM 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 SQM 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 on Insider Monkey.