Toward the end of May, Goldman Sachs (GS, Financial) declared the bull market for electric vehicle battery metals, including lithium, cobalt and nickel, was over for now. As a result, many lithium stocks plummeted, including several with robust fundamentals.
Soaring lithium prices
However, soaring lithium prices suggest Goldman analysts could be wrong. Additionally, Tesla Inc. (TSLA, Financial) CEO Elon Musk continues to call for mining companies to boost their extraction of lithium because he does not think there is enough of the metal to meet the booming demand for electric vehicles.
According to data from Edison Group, it is true that lithium prices declined after the 2018 peak of around $15,000 per ton, falling to around half of that by the end of 2020. However, the lithium price soared throughout 2021, surpassing $25,000 per ton by the end of the year and continuing to skyrocket this year past $40,000 a ton.
Data from the London Metal Exchange and price reporting agency Fastmarkets reveals the weekly price for lithium hydroxide, insurance and freight rose to $81,550 a ton at the beginning of May. In fact, the battery-grade lithium has more than doubled since the beginning of the year.
Not everyone agrees with Goldman, though, as Citigroup (C, Financial) said in February that lithium prices would continue to increase due to the growing demand for electric vehicles. However, lithium-mining stocks plummeted this month following Goldman Sachs' bearish report on prices for the metal.
As a result, investors might find that some opportunities have appeared.
Albemarle
Shares of Albemarle Corp. (ALB, Financial) are only down by about 6% year to date, but they are off by about 9% in the last month and up by more than 9% in the last five days. This company may be a good pick because it is not primarily a miner. It is actually a specialty chemicals company, although it also mines lithium and produces bromine and some refining catalysts.
Lithium contributes to more than half of Albemarle's revenue, but it is not a pure lithium play, which might put some investors off. The company owns lithium mines in Australia and Chile, though it is headquartered in the U.S.
Albemarle is also one of the largest lithium producers in the world that supplies the metal to EV battery manufacturers. The company is currently investing in doubling its domestic lithium production to help prevent disruptions from international supply chains for automakers.
The company reported strong earnings numbers from its March quarter, including a 36% year-over-year increase in revenue and a 165% increase in net income. Earnings per share rose 116% year over year. Between the company's strong financials and rising lithium prices, Albemarle looks like it could be a solid choice at a time when the equity market is in freefall.
Livent
Livent Corp. (LTHM, Financial) shares are down 17% over the last month, flipping the stock from the green earlier this year into the red. However, the stock is up by 8% over the last five days, suggesting investors are getting over Goldman's declaration about potential weakness in lithium prices.
Like Albemarle, Livent is not primarily a lithium miner. Instead, it is a technology company that produces batteries for small devices and EVs.
Additionally, about 50% of Livent's revenue is from energy storage products. The company also produces alloys and polymers used in a number of industries, ranging from tennis shoes to aircraft. Thus, the wide variety of revenue streams provides a source of strength for Livent because it is not dependent solely on any one industry.
The company is also vertically integrated to a point because it mines its own lithium in Canada and Argentina. Livent is also one of Tesla's primary lithium suppliers, further diversifying its revenue streams and serving Musk, who has repeatedly called for miners to produce more lithium.
The company is also enjoying sizable growth, with its revenue up by more than 50% year over year in March and its net income up by almost 6,800% year over year. Despite Livent's relatively young age, it is already profitable and has a healthy track record of beating revenue. The company has also beat earnings in three of the last four quarters.
Final thoughts
Some investors might find the lithium market ripe for the picking right now, but as with any investment, there are no guarantees. The steady growth in demand for EVs and energy storage products suggests there could be increasing opportunities for lithium miners.
Additionally, companies that do more than just mine lithium, like Albemarle and Livent, offer diversified revenue streams that could provide some support if Goldman ends up being correct about the possibility of a pullback in lithium prices.
However, it is also important to realize the best investments are long-term plays because traders who invest with a short-term mindset are more likely to lose money. Multiple studies have shown over the years that long-term investing offers support during periods of volatility because it is impossible to time the markets.
Since EVs and energy storage are likely to be long-term investment trends, it might make sense to hold strong lithium stocks for an extended period, even if they do pull back temporarily. After all, most of the stock market is in the red now, so based on that, lithium stocks do not look too bad.
