From being among the hottest stocks, we’ve come to a point where no one seems to be interested in buying lithium stocks. It’s said that long-term investing is boring. The reason is that value investors look for ideas to patiently hold before the next bull run. Lithium stocks might remain sideways to lower in the coming quarters. I would use this opportunity to accumulate potential multibagger lithium stocks.
When the next rally comes, there can be 10x or 20x stories. Of course, there needs to be ample reasons to back the conviction. From an industry as well as company perspective, lithium has plunged due to oversupply. Weakness in the EV industry has further depressed sentiments.
However, over the next 5 to 10 years, the outlook for lithium is positive. As investment in new mines decelerates, analysts are talking about a global lithium shortage by 2025. Boston Consulting Group further anticipates that the lithium supply gap will likely be acute by 2035. Therefore, for a long-term investor, this is the best time to buy stocks that represent companies with quality lithium assets.
Lithium Americas (LAC)
Among the emerging names, Lithium Americas (NYSE:LAC) will likely be a massive wealth creator. It’s worth noting that LAC stock had surged from 2024 lows of $3.8 to $7.4. The big rally was on the back of the commitment by the U.S. Department of Energy for a $2.26 billion loan to fund the construction of the Thacker Pass project.
However, there has been a subsequent correction in LAC stock with the company raising $275 million by issuing fresh equity. The correction is a good time to accumulate the stock as Lithium Americas closes the funding gap for its game-changing project.
The Thacker Pass asset has a mine life of 40 years and has an after-tax net present value of $5.7 billion. In the first four years, the asset will likely deliver an average annual EBITDA of $1.1 billion. Further, between years 5 and 40, the average annual EBITDA from the asset is expected at $2 billion. Clearly, the asset is a cash flow machine. Once production commences, the company will have the financial flexibility to invest in other lithium assets.
Piedmont Lithium (PLL)
Piedmont Lithium (NASDAQ:PLL) stock has plunged almost 80% in the last 12 months. The stock seems deeply undervalued after the massive correction. Considering the asset valuation, I believe PLL stock will likely deliver multibagger returns.
To put things into perspective, Piedmont has a market valuation of $225 million. If we just consider the Ghana asset, the after-tax NPV is $1.3 billion. Further, the Carolina and Tennessee have a combined after-tax NPV of $4.5 billion. Without a doubt, the stock trades at a deep valuation gap.
It’s worth noting that Piedmont has supplier agreements with the likes of Tesla (NASDAQ:TSLA) and LG Chem. Once new assets go into production, offtake agreements will provide revenue visibility.
However, for now, the key catalyst for Piedmont is closing the funding gap. Once sentiments recover for lithium, it’s likely that Piedmont will aggressively pursue the construction of its key projects in North America.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) stock has plunged 70% in the last 12 months. The stock seems deeply undervalued at current levels of $1. Considering an investment horizon until 2030, I expect SLI stock to deliver 20x returns.
Standard Lithium is another name that has high-quality lithium assets. Currently, it commands a market valuation of $192 million. In comparison, the company’s Lanxess asset has an after-tax NPV of $772 million.
That is, however, not the key asset of the company. The South West Arkansas project has an after-tax NPV of $4.5 billion. That puts into perspective the extent of undervaluation and underscores my view that the stock is a steal at current levels.
However, it’s worth noting that the Arkansas asset has a development capex of $1.27 billion. The financing must come through equity dilution, debt or a joint venture partner. That’s likely when lithium recovers and will be a major upside catalyst for SLI stock.
On the date of publication, Faisal Humayun 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.