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Trade Alert: Lithium

Trade Alert: Lithium

The miner with the best fundamentals.

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Portfolio Armor
Jun 13, 2024
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The Portfolio Armor Substack
The Portfolio Armor Substack
Trade Alert: Lithium
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A detailed illustration showing the role of lithium in power grid expansion. The image features a modern power grid with high-voltage power lines connected to AI data centers and electric vehicle charging stations. Highlight lithium batteries as energy storage units placed between renewable energy sources (like wind turbines and solar panels) and the power grid. Depict the integration of these elements in a futuristic cityscape with AI data centers and numerous electric vehicles. Use arrows and labels to show the flow of energy from renewable sources to lithium storage units, then to data centers and charging stations.

The Case For Lithium

Earlier this month, Michael Lebowitz wrote about investment ideas that could benefit from upgrading and expanding the power grid to accommodate surging demand from AI data centers and electric vehicles. One of them was lithium:

Lithium Miners

Assuming lithium remains a crucial component in electricity storage batteries, its miners should do well, especially given the recent decline in lithium prices and the related stocks.

North Carolina-based Albemarle (ALB) is the world’s top lithium producer and the largest producer by market cap. It is the only lithium producer of size based in the US. Like the rest of the alternative energy sector, its stock has traded poorly recently. However, with a forward P/E of 16, there is value if its revenues continue upward at their recent pace.

We caution you that lithium deposits are being actively explored. Assuming success, the lithium supply may limit the price appreciation of lithium. As an example from The Hill- Researchers make massive lithium discovery in Pennsylvania.

The Lithium Miner With The Best Fundamentals

There does seem to a lot of lithium out there, but today’s trade is a bet that demand for it will rise faster than supply in the near term. It’s also a contrarian bet in that lithium miners have been beaten down recently, as Lebowitz says above. Here’s how the lithium miner he mentions there, Albemarle (ALB 0.00%↑), ranks fundamentally, according to Chartmill (rankings are on a scale of 0 to 10, with 10 being the best, except for the Piotroski F-Score, where 9 is the best):

  • Overall Fundamental Rating: 4

  • Profitability: 3

  • Health: 4

  • Valuation: 4

  • Dividend: 5

  • Piotroski F-Score: 4

And here’s how the lithium miner we’re betting on today ranks on the same criteria:

  • Overall Fundamental Rating: 6

  • Profitability: 9

  • Health: 7

  • Valuation: 6

  • Dividend: 7

  • Piotroski F-Score: 7

Of the major lithium miners, share prices of all of which have been dropping recently, ours appears to have the strongest fundamentals.

The maximum upside on our trade is a gain of about 200% by October, and the maximum downside is a loss of 100%.

Details below.

Today’s Lithium Trade

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