Powering the Future! The Investment Opportunity in Battery Metals.

This week's edition of Investing Intel is tackling battery metals head-on, giving you the insights to pick the next stock for your portfolio!

Mar 20, 2023

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Konnichiwa, and welcome to another edition of Investing Intel from the team at ValueTheMarkets!

Across this newsletter you’ll find:

👉 Three stock insights

👉 A news roundup

👉 Investing signals

👉 Fear & Greed

👉 The finest content from ValueTheMarkets

👉 Key dates for your diary

👉 Some fun facts!

What are battery metals and why do we think they are worth their very own newsletter? In short, and this may be stating the obvious, they are the raw materials required for the production of batteries. Makes sense when you think about it.

This cadre of metals includes the likes of lithium, nickel, cobalt, manganese and graphite.

Demand for these materials has increased significantly over recent years as sales relating to smartphones, energy storage and electric vehicles (EVs) have shot up. But things aren’t stopping there.

Demand for battery metals is expected to increase substantially by 2030 and exceed projections, especially lithium, according to research released last year by the International Energy Agency. Indeed, insights from Straits Research estimate the battery metals market will grow at a CAGR of 34.80% between 2022 and 2030.

Not all forecasts are so rosy, but sources agree the metals’ ability to store and unleash huge amounts of energy makes them a key part of ongoing decarbonisation efforts. With this considered, many have identified the space as ripe for investment.

But which battery metals stocks do we like the look of?

The Chemist - Albemarle Corporation (NYSE: ALB)

This business is a big dog when it comes to battery metals. Albemarle Corporation (NYSE: ALB) was spun out from Ethyl Corporation back in 1994, itself a business formed by General Motors (NYSE: GM) back in the 1920s.

While the new entity initially specialized in chemicals, battery metals have come to represent the majority of its operations. Indeed, 2022 saw lithium account for more than 68% of the business’s revenues, and the company provides lithium to major EV manufacturers like Tesla (NASDAQ: TSLA).

Today, the business operates the only active lithium project in the US at the Silver Peak mine in Nevada, while the business also runs a lithium hydroxide plant and R&D facility. Additionally, Albemarle holds a 49% share in Talison Lithium’s spodumene mine in Australia.

This massive exposure to lithium leaves Albemarle nicely situated, as demand for the metal is anticipated to rocket over the coming years due to its status as a key component in EVs, consumer electronics and energy storage systems. This emerging demand has already had a marked effect on the company’s share price, which has leapt by more than 120% across the last five years.

As well as bright prospects for the future, Albemarle can already boast of strong financial performance. It has racked up growth across the board, showing growth in revenue, income, cash flow and shareholder equity. In fact, 2022 saw net sales almost triple to $2.6bn, while adjusted diluted EPS of $8.62 represented an astronomical increase of 753%.

Further growth is expected in 2023, with Albemarle projecting net sales growth of between 55% and 75% and a 50% hike to adjusted diluted EPS.

To sum up, we like this stock because of its impressive exposure to lithium, its solid financials and its diversified revenue streams. Albemarle has already made a big splash and is hardly flying below the radar, but if you’re looking to invest in battery metals then it makes sense to consider a stock which already looks like a success story.

Research Albemarle

The Pure-Play - Livent Corp (NYSE: LTHM)

This business started life as Lithium Corporation of America back in the 1940s, though the company has not always been in control of its own destiny.

Like Albemarle, Livent Corp (NYSE: LTHM) has some roots in chemical production. The business was spun off from FMC (NYSE: FMC), which started life as a producer of insecticides, breaking free in February 2019.

Now it’s a specialist in lithium extraction and purification technology, as well as producing and distributing lithium-based compounds. Its products have applications in energy storage, aerospace technology, industrial operations and the pharmaceutical industry, as well as being a key ingredient for high-performance grease and polymers.

The business’ financials demonstrate enormous progress within the space of just a year. The company’s full-year earnings for 2022 show that revenue almost doubled from $420.4m to $813.2m. Meanwhile, costs were kept under control during the period, allowing Livent to increase net income from a measly $0.6m to $273.5m.

The business has its sights set on further growth, with recent guidance indicating it will breach the $1bn mark for annual revenue in the ongoing year. Meanwhile, earnings are seen as growing by as much as 58% too.

The business has some serious cash on hand too, as well as minimal debt, meaning that it can afford to bolster its technology and increase its production capabilities in order to keep up with the strong projected demand for lithium.

Despite these positives, Livent’s share price growth hasn’t exactly been explosive over the recent period. In fact, its share price has actually fallen by more than 17% over the last 12 months.

Concerns about electric vehicle production rates and demand, along with increasing attention on lithium production from competitors appear to have taken a toll on the business.

However, there’s no arguing that Livent looks ideally situated to take advantage of the anticipated demand for battery metals.

If you want to invest in lithium, seen by many as the headline battery metal, a pure-play stock like Livent could be a good option. Additionally, this is a business with strong financials, money in the bank to invest in its growth and innovative technology.

Research Livent

Electric Potential - QuantumScape Corporation (NYSE: QS)

For our final stock, we’re taking a slightly different tact and discussing a straight-up battery technology business in the form of QuantumScape Corporation (NYSE: QS).

This company is an energy storage specialist which was founded back in 2010 with the expressed purpose of creating technology to meet the battery life, charging speed and cost requirements to kickstart the green transport revolution.

In QuantumScape you’d be investing in the business’ potential as it's very much seen as a growth stock that remains at the development stage. But that’s exactly what is so exciting about this business.

QuantumScape’s solid-state lithium-metal battery technology has the potential to significantly improve the performance, safety and cost of electric vehicle batteries, which would be a huge boon to the rapidly growing and increasingly competitive EV industry.

The company claims that its batteries could offer up to 80% more energy density, up to 50% lower cost, and much faster charging times compared to traditional lithium-ion batteries. If QuantumScape's technology lives up to its promise, it could revolutionise the future of travel.

In short, the company’s product is something to shout about.

The potential of its product has attracted a wealth of big names to back the company, including Bill Gates, Volkswagen and the Qatar Investment Authority. Additionally, QuantumScape has formed partnerships with influential movers and shakers like ExxonMobil (NYSE: XOM).

What’s more, the business has a strong record of achieving its goals within its target timeframes, often a rare achievement for ambitious growth stocks dealing with cutting-edge technology. Having finished 2022 by shipping its first 24-layer A0 prototype battery cells to customers, the business also succeeded in scaling up cell and ceramic solid-electrolyte separator production.

For the year ahead, the business is aiming to further improve its battery technology by increasing cathode capacity, improving production quality and revamping production processes.

We like this stock for its advanced technology, growing addressable market and solid record of meeting targets. However, this is likely an investment for the long haul as, by its own admission, QuantumScape remains some distance from releasing a commercial product.

Research QuantumScape

News in Brief

Breaking the Bank. Bank stocks remained at the centre of the news for the second successive week. Silicon Valley Bank’s former parent company, SVB Financial, declared bankruptcy after a run on the startup-focused outfit led to its collapse. Meanwhile, First Republic Bank drew back from the edge of oblivion late last week after financial heavy hitters agreed to deposit $30bn with the company, though trouble still lingers…

More Big Tech Cuts. The trend of job cuts at major tech players shows no signs of abating, with Amazon (NASDAQ: AMZN) on Monday announcing the layoffs of around 9,000 employees. The cuts, which will affect Amazon Web Services and Twitch in particular, follow similar moves from the likes of Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT).

Trump Teetering? Former US President Donald Trump has stated he expects to be arrested on Tuesday. The controversial figure and famously sore loser used his Truth Social platform to urge his supporters to protest against his supposedly imminent detainment. With Trump’s supporters having been responsible for the chaos that took place during the notorious January 6th riots at the US Capital, these latest developments could have significant ramifications for the Republican Party and the looming Presidential election at large.

Investing Signals

We’re going to kick off our investing signals with a bit more of a look into battery metals trends and intelligence.

Commodities research from Goldman Sachs indicated that battery metals prices could soften in the next couple of years following surging demand due to increasing EV production. This is because of price correction in conjunction with increasing supply as projects in Australia, Asia and South America come online. Even so, the researchers noted that, with regards to lithium, “the oversupply and price pressure forecast will ultimately sow the seeds of the next bull market, in our view, as it will reinforce lithium’s position as the preferred raw material by battery makers”.

Meanwhile, S&P Global research indicates that the sales momentum of EVs, a key driver of growth for battery metals, is at risk across 2023 from the ending of China-based subsidies, European energy price rises and US recession risk. However, the same research remains positive on the market’s position over the longer term, adding that it could remain unaffected by any stutter that might take place this year.

In more general news, the top-trending North American stocks on WallStreetBets over the past week are First Republic Bank (NYSE: FRC), JPMorgan Chase (NYSE: JPM), NVIDIA (NASDAQ: NVDA), C3.ai (NYSE: AI) and Bank of Montreal (NYSE: BMO). With three banking stocks in the top five, it's clear investors remain concerned about further collapses due to liquidity isssues. Indeed, First Republic appears to be in serious trouble even after benefitting from a $30bn deposit boost from fellow banks seeking to avoid a chain of collapses. The bank is reportedly discussing the possibility of issuing new shares to raise capital and has since suffered a credit rating downgrade from S&P.

There’s more banking chaos at the top of the Google search charts for the past week too, with troubled Swiss giant Credit Suisse (NYSE: CS) heading the pack. A speedy rescue deal has been cooked up for the bank by domestic rival UBS in a deal backed by the Swiss government in an attempt to calm markets. Some analysts are optimistic that the deal could help to restore confidence in banks but European contemporaries have also seen their share prices stumble at the start of the week, with the likes of Deutsche Bank (NYSE: DB) and HSBC (NYSE: HSBC) dipping in early trading.

Fear & Greed

The Fear and Greed Index is a measure of stock market sentiment calculated by CNN Business using seven measures including market momentum, market volatility, and safe haven demand. It’s meant to shed light on the emotions currently driving the market, giving you insight into how traders are making decisions. Remember, traders are humans, not robots.

As you can see from the graphic below, we’re squarely in the field of fear at the start of this week. Concern about the health of both several North American and European banking giants has escalated and traders are worried about a repeat of the 2008 banking crisis. However, experts are largely attempting to reassure the markets that banks are in better health this time around, despite a series of recent shocks.

Dates in the Diary

Tuesday 21^st – US Existing Home Sales (February)
Wednesday 22^nd – FOMC Meeting / Fed Interest Rate Decision / Fed Economic Projections
Thursday 23^rd – US New Home Sales (February)
Friday 24^th – US Preliminary Manufacturing PMI (March) / US Preliminary Services PMI (March)

Fun Fact – Fooling the Market

Everybody loves a practical joke, right?

Well, no actually.

There are even cases of practical jokes dealing significant damage to investors.

Perhaps the most notable example of this came in 2005, when anti-consumerist culture jamming collective The Yes Men pulled off one of their most notorious pranks.

The group, formed by Jacques Servin and Igor Vamos made a fake website that posed as an official page of the World Trade Organisation. The duo was surprised to find that many people believed their hoax site to be genuine, with financial institutions even using the website to invite them to speak at various events.

The duo eagerly accepted offers, eventually leading them to announce to a room full of Australian business owners and entrepreneurs that the WTO was to disband, a move which caused a brief drop in the stock market before people twigged to the joke.

It’s not the only time the group has impacted share prices either. One prank saw the group posing as DOW Chemical Company spokespeople and appearing on BBC World News to state that the business would pay the entire cleanup costs for the 1984 Bhopal gas disaster, which killed as many as 16,000 people and injured more than 500,000 more.

DOW had purchased Union Carbide Corporation, which owned the pesticides factory that caused the disaster, in 2001.

The company’s share price fell by more than 4% in the space of less than half an hour before it became clear that the statement was a hoax. Even so, the damage will have been felt by some investors who were naïve enough to believe DOW’s sudden ethical stance.

Until Next Time

Many thanks for taking the time to enjoy Investing Intel today, we hope you’ve enjoyed our insights and are looking forward to more in the week ahead.

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