Stocks to buy

Lithium has demonstrated its value in the digital age. Its high electrochemical potential makes it a valuable component of high energy-density rechargeable lithium-ion batteries. These batteries go on to power products including personal computers, smartphones, and tablets. Most importantly for today’s market, lithium is also a key ingredient for making lightweight, power-dense batteries that are essential for electric vehicles (EVs).

As EV adoption is rapidly increasing around the world, so is the demand for lithium. Albemarle (NYSE:ALB) analysts estimate that global lithium production will grow from 636,000 metric tons in 2022 to about 1.8 million metric tons in 2024. This creates a huge opportunity for both lithium producers and public equity investors who want to profit from this trend. In this article, we will look at the three best lithium stocks, in my opinion, that have the potential to deliver strong returns for investors in 2023.

Livent Corporation (LTHM)

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Livent Corporation (NYSE:LTHM) is a U.S.-based company that produces and sells lithium hydroxide, lithium carbonate, and other lithium compounds. The company’s access to lithium compounds comes primarily from its Salar del Hombre Muerto mine in Catamarca, Argentina. Livent’s secondary mining operation is the Whabouchi mine located in Quebec, Canada.

The company operates in North America, South America, Europe, Asia, and Australia, serving customers in industries like battery manufacturing, automotive, aerospace, energy storage, and pharmaceuticals. Livent is one of the leading producers of high-purity lithium hydroxide, which is preferred by many EV battery makers for its superior power density and efficiency. The lithium producer also has long-term supply agreements with major EV manufacturers, such as Tesla and BMW. It also has a robust pipeline of growth projects including the expansion of its operations in Argentina and its new facility in China.

In terms of financials, Livent has also been impressive. Last year, the company benefitted from buoyant commodities markets. In particular, Livent reported revenue of $813 million and net income of $273 million in 2022, representing YoY revenue growth and net margin of 93% and 34%, respectively. Livent is well-positioned to benefit from the growing demand for high-quality lithium products in the EV market.

Albemarle Corporation (ALB)

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Albemarle Corporation (NYSE:ALBmines, develops and manufactures specialty chemicals. However, the company is best known for its lithium mining operations. Albemarle’s operations are primarily in Chile, and this has come with a host of political risks I have elaborated on in a prior article. To summarize, there was recent panic around Chile’s President Gabriel Boric’s announcement his government would assume a larger role in the Chile’s lithium mining sector. This sent mining stocks, including ALB, crashing in April.

Despite the market sell-off, ALB executives did not see this as a nationalization of Chile’s lithium industry as many feared. They stressed Albermarle’s operations would not be harmed by the move.

For investors wanting to tap into the lithium craze, Albemarle is a great candidate. In 2022, Albemarle generated $7.3 billion in revenue and a whopping $2.7 billion in net income. Furthermore, on a trailing-12-month basis, the company is also trading at only 7.5x earnings, making its valuation incredibly attractive.

Sociedad Quimica y Minera de Chile (SQM)

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Sociedad Quimica y Minera de Chile (NYSE:SQM) is a Chilean company that produces and sells specialty chemicals including lithium, potassium, iodine, and nitrates. It operates in five segments: Lithium and Derivatives, Specialty Plant Nutrition, Iodine and Derivatives, Industrial Chemicals, and Potassium.

SQM is the second-largest producer of lithium in the world, with operations in both Chile and Argentina. The company also boasts one of the largest mines in the world at Salar de Atacama, Antofagasta, Chile. Salar de Atacama not only provides low-cost and high-quality source of lithium brine but is one of the largest and richest salt flats in the world.

SQM reported revenue of $10.7 billion and net income of $3.9 billion in 2022, representing YoY revenue growth and net income margin of 274% and 36%, respectively. SQM’s share price is only up nearly 2% year-to-date. This was mostly due to the market route surrounding Chile’s potential nationalization of the mining sector. Since the Chilean government’s initiative has fell short of nationalization, now might be the best time to purchase SQM’s shares. The company is well-positioned to benefit from the growing demand for lithium products in the EV market.

On the date of publication, Tyrik Torres did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Tyrik Torres has been studying and participating in financial markets since he was in college, and he has particular passion for helping people understand complex systems. His areas of expertise are semiconductor and enterprise software equities. He has work experience in both investing (public and private markets) and investment banking.

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