Lithium prices fell sharply in 2023, and analysts’ outlook for prices in 2024 is still not optimistic, even as the popularity of electric vehicles spurs lithium demand. Some analysts are predicting that a global lithium shortage will not occur until 2025 at the earliest.
Given the pessimism in the lithium market, now should be a good time to buy quality lithium stocks at lower levels. With lithium prices plummeting, lithium mining stocks are severely undervalued. For lithium producers with solid fundamentals, waiting until the lithium price recovers could provide investors with multibagger return, such as the three stocks below.
Lithium Americas (NYSE:LAC) is a lithium stock that has the potential to deliver multibagger return, with a current share price of just $6. Although, like most lithium stocks, the shares have fallen considerably over the past year, buying Lithium Americas in tranches on the downside makes a lot of sense given the asset potential.
Lithium Americas owns the Thacker Pass project in the United States. This asset is the largest known measured and indicated lithium resource in the U.S. and the only fully permitted lithium project, with an after-tax net present value of $5.7 billion. In comparison, Lithium Americas is currently marketed at a valuation of only US$1 billion, with the potential for undervaluation.In 2023, General Motors Corporation injected US$650 million into the project in two tranches, resolving the financing issues to ensure completion of the project and entering into a ten-year Phase I production off-take agreement.
A blue chip among lithium stocks, Albemarle Corporation (NYSE:ALB) currently trades at an attractive share price, with a forward price-to-earnings (P/E) ratio of just 6.3 times, and offers a dividend yield of 1.17%. At current valuations, with lithium prices stable or rising modestly, this lithium stock has limited downside and huge upside potential.
It’s worth pointing out that even with low lithium prices, Albemarle’s Q3 2023 revenues grew 10% to $2.3 billion. In addition, adjusted EBITDA was $453.3 million. The company expects full-year operating cash flow of $700 million.The most brutal part of the lithium price correction may be behind us in 2024. Earnings are expected to be strong in the coming years as Albemarle invests in lithium conversion capacity expansion. From 2022 to 2027, the company aims to triple its lithium conversion capacity to 600,000 tonnes per year. Therefore, it is wise to invest when market sentiment is low.
Standard Lithium (NYSE:SLI) is a low-priced lithium stock. An investment in this small-cap stock has the potential to deliver a 10x return if lithium prices soar and remain high over the next few years. The company’s flagship project is located in southern Arkansas, U.S. The mine has a net present value of $4.5 billion, while the current market valuation is just $330 million. One reason for the gross undervaluation is the plummeting price of lithium.
Another reason is that the project cost $1.3 billion to develop. If the project manages to secure financing in the future, Standard Lithium’s share price will soar. One thing to add here is that the Lanxess project already has an after-tax net present value of $772 million. So, with the huge potential in terms of assets, it would be very easy for the company’s share price to skyrocket if it develops the project and secures sufficient funding in the next few years.
