The best lithium stocks industry investment analysis from mining to batteries – sure dividend sure dividend electricity distribution costs


Lithium (atomic symbol Li) has many unique characteristics. It’s light and soft – soft enough to be cut with a butter knife and light enough to float on water. Further, the metal has a relatively low melting point but a high boiling point. Its uses vary dramatically, from the manufacture of aircraft and batteries to mental health medicine.

In 1991 Sony popularized the lithium ion battery and now it has become a vital part of nearly every electronic device. Naturally the use of electronics has taken off with mobile phones leading the way in the last decade. However, electric vehicles are becoming the true drivers of demand, as an electric car requires 5,000 to 10,000 times as much lithium as a mobile phone.

There are two main ways of extracting lithium: mining and brine water. Interestingly, about 87% of lithium is extracted via brine water from briny lakes known as salars. The highest concentrations of these lakes are found in Chile and Argentina. electricity experiments Lithium is obtained via evaporation in the form of lithium carbonate, the raw material used in lithium ion batteries. This process also leaves behind magnesium, calcium, sodium and potassium.

As noted above, short and intermediate-term demand for lithium will likely depend on the dynamics of the electric vehicle market. eon gas card top up Mobil device adoption will continue to be a driver, but electric vehicles require thousands of times as much lithium and hence have a much larger influence. Batteries for storage for renewable energy could be an important driver down the line, but that is viewed as more of a long-term demand driver.

Bloomberg anticipates electric vehicle sales, which came in at 1.1 million last year, to rise to 11 million by 2025 and to 30 million by 2030, as electric battery costs become cheaper than internal combustion engines. Moreover, the expectation is that China will lead the charge (literally) with electric vehicles making up 33% of the global fleet and 55% of all new car sales by 2040.

Additionally, while demand forecasts vary widely, it is largely expected that electric vehicle production will test supply in the years and decades to come. Indeed, some believe that electric vehicle adoption will be stymied by the availability (or lack thereof) of key components like lithium, as the recent ramp up in demand moves much faster than the ability to establish new mines, which often take years.

On a per share basis, shares trade hands around $43; the company earned $1.68 in the last twelve months and paid out $1.78958 in dividends. These numbers equate to a trailing earnings multiple of 25.6 times earnings, with a 4.2% dividend yield and a 107% payout ratio. Keep in mind that the company’s dividend policy is to pay out all of its profits in dividends unless certain balance sheet requirements are not being met.

In addition to a dividend policy that allows for significant dividend fluctuations, we also caution that the security is subject to significant swings in earnings – ranging from $225 million in 2015 ($0.84 per share) up to $475 million in 2013 ($1.77 per share, two years prior). Moreover, the share price has swung dramatically as well – falling 75% from 2011 to 2015 and jumping back 275% to 2017 (only to fall 28% this year).

SQM’s most impressive assets are the low-cost lithium deposits in Chile’s Salar de Atacama, which has both the highest concentration of lithium globally and benefits from the high evaporation rates in the Chilean desert. The company also has about half the market share in potassium nitrate and is the world’s largest producer of iodine. These three industries ought to benefit from the ongoing trends toward electric vehicles, increased crop production and healthcare spending.

Last year the company generated $3.1 billion in revenue and earned $433 million. Shares are currently trading hands around $97 and in the last twelve months Albemarle has reported $6.23 in earnings-per-share and paid out $1.325 in dividends. Those numbers equate to a trailing P/E ratio of 15.6, a dividend yield of 1.4%, and a 21% payout ratio.

Albemarle produces lithium from salt brine assets in Chile and two joint ventures in Australian mines. The company is also the second largest producer of bromine and a top producer of catalysts used in oil refining. Albemarle has a long-term contract through 2043 with the Chilean government to be able to extract around 80,000 tons of lithium per year.

Last year the company generated $75 billion in revenue and earned $2.2 billion in net profit. The share price is around $10 and Panasonic has reported earnings-per-share of $0.97 and paid out $0.27 in dividends over the last 12 months. That equates to a trailing multiple of about 10 times earnings, with a 2.7% dividend yield and 28% payout ratio.

As a general theme, earnings have been volatile. electricity outage sacramento Panasonic reported significantly negative earnings in 2008, 2009, 2011 and 2012. However, since 2013 earnings-per-share have doubled. In the company’s most recent quarterly report Panasonic held $9.4 billion in cash and equivalents and $56.9 billion in total assets against $28.2 billion in current liabilities and $39.3 billion in total liabilities.

Panasonic is a diversified business, going well beyond the lithium battery market, with arms in electronic component mounting, appliances and home building products. This has the benefit of safety (when one division does poorly, other divisions can often make up the shortfall) but it can also dilute the growth potential a “pure play” lithium battery maker might have. Still, Panasonic is well positioned in the industry.

“Tesla’s mission is to accelerate the world’s transition to sustainable energy. electricity 101 Since our founding in 2003, Tesla has broken new barriers in developing high-performance automobiles that are not only the world’s best and highest-selling pure electric vehicles— with long range and absolutely no tailpipe emissions —but also the safest, highest-rated cars on the road in the world. Beyond the flagship Model S sedan and the falcon-winged door Model X sports utility vehicle, we also offer a smaller, simpler and more affordable mid-sized sedan, Model 3, which we expect will truly propel electric vehicles into the mainstream.”

“In addition, with the opening of the Gigafactory and the acquisition of SolarCity, Tesla now offers a full suite of energy products that incorporates solar, storage, and grid services. As the world’s only fully integrated sustainable energy company, Tesla is at the vanguard of the world’s inevitable shift towards a sustainable energy platform.”

From 2010 through 2017, Tesla racked up almost $5 billion in net losses. This has weighed heavily on both the balance sheet and the share count. The share count increased nearly 80% in this eight-year stretch, jumping from 95 million in 2010 to 169 million last year. Further, the company now holds almost $10 billion in debt, requiring ~$600 million in annual interest payments.

This puts a big burden on future endeavors. The good news is that the company just reported a net profit for the last quarter. The lesser news is that overall earnings will still be negative this year. Moreover, earnings expectations are all over the map for next year, but it remains that interest payments will make up a large portion of what the company might otherwise bring to the bottom line.

Further, the company’s penchant to continue to expand requires significant cash that may not be easy (or pleasant) to continue to raise through share offerings or debt. And if we see an economic downturn in the years to come, this could dramatically test both the company’s customer base and its balance sheet at a time when neither are in a position to be tested.

On the mining side, you have the “Big 3” along with a group of Chinese companies working to take significant share. electricity facts ks2 In general, the mining side looks somewhat interesting from an economic standpoint due to the inelastic demand of the raw material. Because lithium is essential, but not a huge cost driver in battery production, battery makers are unlikely to significantly reduce their consumption even in the face of higher Lithium prices. While miners cannot dictate higher prices by themselves, they are likely to benefit from higher prices if they come about from supply shortages / faster demand growth.

While both businesses have seen significant upticks in profits as of late, the two securities offer separate value propositions. SQM is an ADR trading around 26 times earnings while paying out basically all of its profits in the form of a dividend. Alternatively, Albemarle is trading around 16 times earnings while paying out only a fifth or so of its profits as cash dividends.

The balance sheets are comparable, but the capital allocation decision-making is dramatically different. In this way, it’s our view that Albemarle looks a bit more attractive. What it lacks in dividend yield, it could make up for in lesser economic times if the company can intelligently deploy the surplus between profits and dividends. Moreover, with around half of its business in lithium, the company stands to benefit tremendously should the demand develop as anticipated in the decades to come.

On the battery side, it’s even more difficult to find a “pure play” lithium stock. There are plenty of companies in the market, but from an investment standpoint there is still a lot of uncertainty. Even Panasonic, which initially may look attractive due to its P/E ratio around 10 times earnings with a 2.7% dividend yield and diversified business line, has a record of negative earnings several times in the last decade.

Lithium is here to stay. There’s a reason that it has gained popularity, especially in the last decade. It’s a versatile metal that has afforded tremendous improvements in how we work, communicate and get around. c gastritis im antrum Moreover, future demand appears robust as the move towards mobile devices, renewable energy and electric vehicles appears to be on the upswing (with the potential for a very long tail).

The takeaway is twofold. Picking a growth industry in general may not be particularly difficult. For instance, it’s conceivable that just before (or even during) the ramp up of trains, automobiles, planes, and the Internet a potential investor could point to these areas as “growth industries.” And indeed, they would have been correct. An investor pointing to the Internet, in say the mid-1990’s for example, would still be seeing that growth industry play out today.

The second consideration is valuation. Even if you do happen to pick the “winners” you still have to be concerned about the price you pay. As a hypothetical, a security trading at say 40 times earnings that grows by 10% annually for a decade and later trades at say 20 times earnings would provide investors with returns of just 2.6% per annum. The consideration is not just, “will a company grow?” but more importantly, “will it grow fast enough to justify the current valuation?” Expressed differently, will current investors capture their “fair share” of investment results?

Overall we are upbeat on the metal and its prospects over the intermediate to long-term, with the above caveats in mind. I f you are interested in the industry, we would first look to Albemarle as roughly half of its profits are derived from lithium, it has stakes in important reserve areas around the world, the dividend payout ratio is modest and shares are currently offering a reasonable value proposition, especially if growth continues to formulate.