The long-term argument remains as robust as ever for these battery stocks
- These battery stocks took a beating last year, but their long-term case remains as strong as ever.
- Albemarle (ALB): Its lithium segment grew at a remarkable pace last year, and is expected to have similar success in 2023.
- Lithium Americas (LAC): The Thacker Pass Project is expected to be a major growth catalyst.
- Honeywell (HON): Sales of its energy storage systems have been growing by double-digit margins in recent quarters.
- Toyota (TM): The only OEM dipping its toes into the solid-state battery space.
- QuantumScape (QS): Arguably the pick of the solid-state battery picks.
- Solid Power (SLDP): Partnership with BMW will pay many dividends down the road.
- General Motors (GM): Ultium Platform could be a game-changer for the firm.
Over the past few years, wagering on battery stocks has been a lucrative endeavor for stock market investors. Powered by the monstrous growth in the electric vehicles (EV) and renewable energy markets, these stocks have generated handsome returns for their investors. For instance, one of the leading exchange-traded funds in the niche, the Global X Lithium & Battery Tech ETF, has gained over 127% in value over the past three years.
The stock market rout last year dented the battery market in a big way. LIT stock shed more than 15% of its value, compared to the S&P 500’s drop of around 8%. Perhaps one of the main reasons for the ETF’s sluggish performance last year could be that a hefty portion of its holdings is in growth stocks. Growth stocks remained in Wall Street’s crosshairs amidst the market’s risk-off sentiment in 2022.
Nevertheless, the potential of some of the top battery stocks remains as enticing as ever over the long term. Moreover, with the stocks down near historical lows, it’s perhaps an ideal time to add them to your portfolios.
Battery Stocks: Albemarle (ALB)
Albemarle (NYSE:ALB) operates a leading specialty chemicals firm operating in three primary divisions, including bromine specialties, catalysts, and lithium. Lithium has been its fastest-growing division, with net sales rising by double-digit margins over the past several quarters.
In its recently released fourth-quarter results, net lithium sales were up more than five-fold from the same quarter last year to $2.06 billion. The robust results had plenty to do with the strength in its pricing, as lithium prices charged by the firm climbed by more than four-fold. As we advance, ALB expects to raise lithium prices this year by at least 55%, an emphatic response to the bears who feel a slowdown is imminent.
ALB stock outperformed the market last year, generating over 30% returns when the S&P 500 was firmly in the red. Considering an incredible top and bottom-line outlook for the year, ahead of consensus estimates, expect the stock to climb even higher this year.
Battery Stocks: Lithium Americas (LAC)
Lithium Americas (NYSE:LAC) is arguably the best pick-and-shovels battery play this year. It’s sitting on a gold mine of a lithium asset, and the Thacker Pass Project is poised to become a cash flow machine for the business in the not-so-distant future. I said not-so-distant future because LAC got approval for its project after a lengthy court trial last month. Moreover, General Motors (NYSE:GM) recently announced a massive $650 million investment in advancing the project. To put things in perspective, the asset has a total life of 40 years and a yearly EBITDA visibility of a whopping $1.18 billion.
In addition to its blockbuster Thacker Pass project, it boasts a 44.8% stake in the Cauchari-Olaroz project based in Argentina. The project has an annual EBITDA visibility of a massive $308 million, and LAC plans to separate its international asset into a new entity which could potentially unlock new value.
Battery Stocks: Honeywell (HON)
Honeywell (NASDAQ:HON) is an applied science and industrial giant with its tentacles in multiple technologies. It boasts a massive portfolio of traditional and renewable energy sources, which continue to deliver steady growth for its business. Moreover, the firm has grown its business profitably, boasting double-digit expansion in its EBITDA and free cash flow margins over the past several years.
Its energy storage systems cover the entire 4-hour, 10-hour, and Long-term discharge cycle through its lithium-ion, flow, and hydrogen batteries. Its energy storage systems are part of its Performance Materials and Technologies segment, which has demonstrated 11% organic growth in the past year. Moreover, it witnessed double-digit growth in organic orders during its most recent quarter, with segment margins at an impressive 22%.
Furthermore, according to Tipranks, HON stock still has a 14.1% upside potential, which should have it trading at its 52-week high price of $220.9.
Most of the top automotive manufacturers are partnering with battery tech start-ups to build a presence in quantum glass or solid-state batteries. However, Toyota (NYSE:TM) has been taking a different approach by building its expertise in the niche. Though it’s been criticized for its progress in the EV sphere, it’s hard to deny its commitment to solid-state batteries.
Toyota intends to spend a massive $13.6 billion on batteries over the next ten years, including a major portion in solid-state batteries. It has gathered over 1,000 patents in the technology and to aims to have its first vehicle using quantum glass batteries by 2025. Perhaps the biggest advantage that the firm has over the pure plays in the sector is that it has a thriving core business to fall back on. Hence, investors need not worry about Toyota’s investments in quantum glass sinking the stock.
QuantumScape (NYSE:QS) is arguably a pioneer in developing solid-state batteries and perhaps a front-runner in space. Its business developments suggest that it’s on course to push toward the commercialization phase. It recently shared data on its solid-state batteries completing 400 consecutive 15-minute fast-charging cycles. Additionally, it shipped its 24-layer lithium battery cells to automotive OEMS for testing late last year.
It remains a pre-revenue firm for now, but the situation could change quickly once its batteries roll out of its factories for public use. Moreover, it still has $1 billion in its cash till and the backing of automotive giants such as Volkswagen to continue pushing the boundaries of its technology.
Solid Power (SLDP)
Colorado-based Solid Power (NASDAQ:SLDP) is another solid-state battery pure-play making superb progress in the sphere. Test results on its batteries continue to impress as it looks to push toward commercialization aggressively. Its sizeable cash balance of over $300 million and the backing of automotive titans such as BMW (OTCMKTS:BMWYY) and Ford (NYSE:F) provide an excellent growth runway ahead.
SLDP recently agreed to expand its partnership with BMW, licensing its solid-state manufacturing process to the automotive giant. Moreover, SLDP has begun producing EV cells in its pilot line and expects to reach the commercialization stage by 2026. Also, it recently received a $5.6 million grant from the U.S. Department of Energy to continue the development of its solid-state battery cells. SLDP stock is trading under $3, much cheaper than QS stock, and boasts similar prospects. Therefore, it’s a more effective wager at current price levels.
General Motors (GM)
General Motors (NYSE:GM) is another top legacy automotive giant, which many would consider the best car business in the world. Electrifying its business seems to be a core agenda for GM as it aims to become a front-runner in the sector. It will invest a dumbfounding $7 billion in its home state of Michigan to expand the production of its battery cells and electric vehicles.
The Detroit company aims to change the game through its Ultium Platform consisting of software, batteries, and other related components. At the heart of the Platform are the firm’s batteries developed in conjunction with LG Energy Solutions. It uses a high chemistry that effectively reduces the tough-to-source cobalt by around 70% while pushing battery costs below $100 per kilowatt-hour. As we advance, the Platform will only improve as GM invests boatloads of cash to position it for further growth.
This post originally appeared at InvestorPlace.
On the date of publication, Muslim Farooque 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.