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Finance

4 Lithium Stocks That Will Benefit from the Electric Vehicle Revolution

The demand for Electric Vehicles (EVs) is continuously increasing with the world transitioning toward a sustainable energy-based future. Higher efficiency and less recurring expenses are primarily motivating people to switch to EVs. According to a report from BloombergNEF, EVs are likely to make up 10% of global passenger vehicle sales by 2025, 28% by 2030, and 58% by 2040.

As lithium-ion batteries are the primary choice for most electric cars today, companies involved in the lithium business should benefit significantly in the years ahead. A growing investor focus on lithium stocks is evident from the Global X Lithium & Battery Tech ETF’s (LIT) 91.6% gain year-to-date, compared to S&P 500’s 13.5% return over the same period.

Lithium stocks like Rio Tinto Plc (RIO), FMC Corporation (FMC), Albemarle Corporation (ALB), and Sociedad Quimica y Minera S.A. (SQM) have already benefited from the EV revolution and are well positioned to continue to ride the boom.

Rio Tinto Plc (RIO)

RIO is primarily a mining company based in London. The company operates through five segments — Iron Ore, Aluminum, Copper & Diamonds, Energy & Minerals, and Other Operations. Operations are spread across 36 countries RIO produces aluminum for cars and copper for electric cars among others.

The company continued to display business resiliency amid the pandemic. For the third quarter that ended September 2020, RIO’s bauxite production climbed 5% year-over-year to 14.5 million tons, driven by record quarterly production at the non-managed CBG joint venture in Guinea. Alumina production increased 7% year-over-year to 2 million tons. The company’s Molybdenum production increased 141% year-over-year due to a 36% increase in head grade, as mine sequencing improved, and a 39% increase in recovery. The consensus EPS estimate of $7.11 for the quarter ending December 2020 indicates a 11.8% increase year-over-year.

RIO signed a new partnership agreement with China’s Tsinghua University, last month, committing $4.5 million over the next five years. This partnership is aimed at improving research projects which support RIO’s 2050 net zero carbon emissions strategy. On November 6th, Western Australia’s newest airport was opened at the company’s Gudai-Darri iron ore project in the Pilbara. On a year-to-date basis, RIO has rallied 18.2% to close yesterday’s session at $72.57. It is currently trading just 0.8% below its 52-week high.

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How does RIO stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

B for Peer Grade

A for Industry Rank

A for Overall POWR Rating

The stock is also ranked #2 out of 33 stocks in the Industrial – Metals industry.

FMC Corporation (FMC)

Founded back in 1884, FMC is mainly an agricultural sciences company. It has a robust product portfolio, fueled by a market-driven discovery and development pipeline in crop protection, plant health, and professional pest and turf management. Moreover, the company’s lithium division provides lithium to the battery, energy, fine chemicals, and polymer industries among others. In fact, FMC is a world leader in the production of lithium-based products.

FMC delivered strong third quarter (ended September 2020) results based on the strength in demand for its technology portfolio, and raised its 2020 guidance. Revenue increased 6.9% year-over-year to $1.1 billion. Organic revenue growth increased 15% year-over-year. Net income increased 23.3% year-over-year to $111.4 million. Non-GAAP EPS increased 29.8% year-over-year to $1.22.

Analysts expect FMC’s revenue to increase 5.6% for the current quarter ending December, 3.1% this year, and 6.1% next year. The company’s EPS is expected to increase 7.9% in the current year, 12.6% next year, and at a rate of 9.8% per annum over the next five years. FMC has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters.

On December 2nd, FMC declared a quarterly dividend of $0.48 per share, which increased 9% from last quarter. The company was recognized with top honors in the Best R&D Pipeline and Best Biological Product categories at the Crop Science Forum & Awards 2020. The company collaborated with Zymergen a few months back to focus on creating breakthrough crop protection solutions. The stock has gained more than 17% in the last six months. It is currently trading just 1.9% below its 52-week high of $120.68.

FMC’s POWR Ratings reflect this promising outlook. It has an overall rating of “Strong Buy” with an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade and a “B” for Industry Rank. Among the 69 stocks in the Chemicals industry, it’s ranked #3.

Albemarle Corporation (ALB)

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Headquartered in Charlotte, North Carolina, ALB is a global developer, manufacturer and marketer of highly-engineered specialty chemicals. The company operates through three segments — Lithium and Advanced Materials, Bromine Specialties, and Refining Solutions. An industry leader in lithium and lithium derivatives, the Lithium segment of the company offers reagents, such as butyllithium and lithium aluminum hydride for applications in lithium batteries for consumer electronics and electric vehicles.

ALB’s gross profit increased 8.9% sequentially to $254.1 million for the third quarter that ended September 2020. The company undertook cost savings initiatives and efficiency improvements in the lithium segment. In the Catalysts segment, Fluid Catalytic Cracking (FCC) volume improved sequentially. Non-GAAP EPS increased 26.7% sequentially to $1.09.

Analysts expect ALB’s revenue to increase 2.6% for the quarter ending March 2021, and 3.3% next year. The company’s EPS is expected to increase 2.8% next year, and at a rate of 15% per annum over the next five years. ALB’s earnings surprise history looks impressive with the company missing the consensus estimate in just one of the trailing four quarters.

Last month, ALB announced that it will serve as a founding member of Zero Emission Transportation Association (ZETA), a first-of-its-kind United States based coalition, which is committed to achieve 100% EV sales by 2030. In September, the company began IRMA’s self-assessment process at the Salar Plant, thus taking the first step towards obtaining the certification that is considered standard for assurance of responsible mining. The stock has gained 80.3% year-to-date to close yesterday’s trading session at $131.72.

It’s no surprise that ALB is rated a “Strong Buy” in our POWR Ratings system. It also has an “A” for Trade Grade, Buy & Hold Grade, and Peer Grade and a “B” for Industry Rank. In the Chemicals industry, it is ranked #5.

Sociedad Quimica y Minera S.A. (SQM)

Operating for more than five decades, SQM has established itself as a world leader in the lithium, potassium nitrate, iodine, and thermo-solar salts markets. The company’s segments include specialty plant nutrients, industrial chemicals, iodine and derivatives, lithium and derivatives, potassium, and other products and services. Being the world’s largest and lowest-cost producer in the lithium and its derivatives market, the company is committed to the development and sustainability of the industry.

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SQM’s sales volumes in the lithium and derivatives business line increased 56.6% year-over-year to 17,700 metric tons for the third quarter that ended September 2020. This is in line with the company’s goal to increase its market share in the lithium space as its is expected to sell over 30% more this year compared to last year. In the Industrials Chemicals segment, SQM’s revenue increased 98.8% year-over-year to $33.8 million.

Analysts expect SQM’s revenue to increase 6.4% for the quarter ending March 2021, and 19.7% next year. The company’s EPS is expected to increase 50% next year, and at a rate of 16.7% per annum in the next five years.

SQM advanced in certifying its sustainability commitments. The company has already begun to reduce surface water consumption. As part of its plan, the company’s aim is to reduce surface water consumption at all its operations, cutting it by 40% by 2030 and by 65% within 2040. A couple of months back, the company added two new barges to its fleet for loading and bolstering solar salt shipments from Tocopilla.

The stock closed yesterday’s trading session at $45.09, gaining 68.9% year-to-date. It is presently trading 7.3% below its 52-week high of $48.63.

SQM’s strong fundamentals are reflected in its POWR Ratings It has a “Buy” rating with an “A” in Trade Grade and a “B” in Buy & Hold Grade, Peer Grade, and Industry Rank. Within the Chemicals industry, it’s ranked #23.

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RIO shares were trading at $73.66 per share on Friday morning, up $1.09 (+1.50%). Year-to-date, RIO has gained 33.40%, versus a 16.06% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More…

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