Lithium stocks are poised and ready to blossom
- Watch these energy stocks as they are positioned to surge in 2024 amid key industry inflection points.
- Sigma Lithium (SGML): Robust fundamentals could translate into a premium acquisition price for this M&A target.
- Rivian (RIVN): Overzealous market activity has sent the stock below its simple moving averages after a delivery miss.
- Albemarle (ALB): It remains one of Wall Street’s favorite lithium stocks with embedded GARP attributes.
The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) has slumped by more than 3% since the beginning of the year. And this is conveying a bearish tone among lithium investors. However, the year has just started. Therefore, I’m not overly worried about the sector’s sluggish start to 2024.
Top-down and bottom-up factors are aligned for lithium stocks to proliferate. Specifically, many lithium stocks will likely benefit from a pending recovery in the consumer environment. Moreover, various lithium stocks hold relative value while being accommodated by sound technical pricing metrics.
With the aforementioned in mind, let’s explore three lithium stocks to watch as we begin 2024.
Sigma Lithium Corporation (SGML)
Sigma Lithium Corporation (NASDAQ:SGML) has established itself as a key player in the green economy. The firm produces high-quality lithium concentrate to service the electric vehicle (EV) market. In fact, it is set to grow by 13.7% per year until 2030.
SGML’s total production sits at around 130,000 tons. This is a substantial amount for a company whose journey began just over ten years ago. The firm’s flagship asset, Grota do Cirilo, produces an annual free cash flow of $1.8 billion. And, that could soon increase as the mine is in phase three commissioning. Additional commissioning may lower Sigma’s cost base via economies of scale, allowing for enhanced price competition.
Sigma Lithium Corporation’s fundamentals are robust, but there’s a catalyst in the works. It is an acquisition target. Reports suggest final bids are under review, with the general narrative communicating a premium will be embedded in the deal. I believe the firm’s aforementioned fundamentals demand a premium-over-fair value. In turn, this will allow SGML’s existing investors to benefit from an arbitrage opportunity.
SGML stock is trading below its 10-, 100-, and 200-day moving averages, suggesting it has room to roam prior to the completion of its sale. SGML stock is a compelling tactical opportunity!
Rivian (RIVN)
Rivian (NASDAQ:RIVN) stock is a buy-the-dip opportunity. The stock slumped by nearly 10% after its December deliveries reportedly settled below target.
Further, Rivian’s deliveries decreased by 10.7% quarter-over-quarter (QOQ) to 13,972, with production coming in at 17,541. Because Rivian is an early-stage company, short-term demand fluctuations are normal.
Rivian shareholders should think long term, as the company has access to a secular end market and may benefit from product differentiation. Moreover, Rivian is early to market. This provides it with the necessary latitude to achieve economies of scale before its competitors. Sure, the EV space is getting crowded. But Rivian is equipped to fend off competition to ultimately ascertain a dominant market position.
Lastly, RIVN stock’s near 10% week-on-week slump has opened up an entry point as the stock is trading below its 10- and 100-day moving averages. I believe investors were overzealous, providing rational investors with a technical price point.
Albemarle (ALB)
Importantly, Jefferies (NYSE:JEF) recently labeled Albemarle (NYSE:ALB) stock a top growth-at-a-reasonable price pick for 2024. Jefferies’ statement is backed up by evidence as ALB’s P/E growth ratio of 0.04x suggests market price is lagging behind earnings-per-share growth. Moreover, ALB stock is trading below its 10-, 100-, and 200-day moving averages. This indicates that a mean reversion opportunity is in play.
Furthermore, ALB stock has support from long-term factors. For example, Albemarle’s net profit margin of 33.63% implies it has achieved economies of scale. This has been achieved via continuous reduction in marginal cost and sustained loyalty from its end market. Additionally, ALB is the world’s largest lithium miner, with a cash-from-operations position of $2.38 billion. So, it can assert additional dominance via acquisitions and internal expansion.
ALB stock has slid by more than 40% in the past six months due to a recent earnings miss and unfavorable lithium prices. However, as with Rivian, I hold the view that investors have overreacted. I would be perfectly comfortable holding this oversold stock.
This post originally appeared at InvestorPlace.
On the date of publication, Steve Booyens did not hold (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.
