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Here’s Your Chance to Invest in “The New Gasoline”

By John Persinos on February 15, 2017

Imagine if you had been able to invest in Standard Oil back at the dawn of the petroleum and automobile industries in the early 20th century. You’d have become a massively rich oligarch along the lines of John D. Rockefeller.

The multi-billionaire oil baron could have told you that one of the surest ways to build wealth is to get on the ground floor of a new technology that’s transforming society.

Lithium now fits that description. In fact, the strategists at Goldman Sachs (NYSE: GS) call lithium “the new gasoline.” Below, I examine ways to play the lithium boom.

Lithium is a lightweight, silver-white metal that’s used to create heat-resistant glass, ceramics and lubricants. It’s used in a host of industrial applications and vital to the production of steel and aluminum. In the field of drug treatment, it’s widely used to alleviate depression and bi-polar disorder.

However, the biggest growth driver for lithium is accelerating demand for lithium-ion batteries that are used to power electric vehicles (EVs) and store renewable energy such as solar.

According to market research firm IHS Markit, lithium-ion batteries represent the fastest-growing form of energy storage and will be a part of about 80% of storage installations by 2025.

Linda McDonough, chief investment strategist of Profit Catalyst Alert, emphasizes that the burgeoning renewable energy industry provides a multi-year tailwind for lithium:

There are several different technologies in the works to house renewable energy generated now for later use. Lithium-ion batteries are the most widely accepted technology.”

Tesla’s bold lithium move…

Elon Musk, visionary co-founder and CEO of Tesla (NSDQ: TSLA), has indicated that he seeks a lithium supply to fill enough batteries to power 500,000 of the company’s EVs per year by 2020.

Tesla has jumped ahead of the competition by constructing its own lithium battery gigafactory that’s on track to produce 35 gigawatts of lithium batteries per year by 2018.

Tesla broke ground on the gigafactory in 2014 outside Sparks, Nevada, and the facility officially launched battery cell production in January 2017. Tesla purposely placed the factory smack dab in a state that’s a vast source of in-ground lithium.

Industrial giant General Electric (NYSE: GE) also has made significant forays into lithium technology, by developing grid-scale energy storage systems for large end users such as electric utilities.

Both Tesla and GE are lithium plays, albeit indirectly. They’re also drivers of demand for the metal and likely acquirers of smaller lithium-related companies.

Credit Suisse (NYSE: CS) reports that demand for lithium could outstrip supply in 2020 by 25%. Not surprisingly, lithium mining companies are popping up like mushrooms in the rain and their share prices have been soaring.

With a market cap of $100.9 million, Lithium X Energy (OTC: LIXXF) owns prolific lithium assets in Argentina and it’s the largest landowner in Nevada’s Clayton Valley, currently the biggest operating source of lithium in the United States. LIXXF’s shares have jumped 167.2% over the past 12 months.

Canada-based Pure Energy Minerals (OTC: PEMIF) has the advantage of being a direct lithium supplier to Tesla’s gigfactory, for undisclosed amounts. Operating in the Clayton Valley and sporting a market cap of $42.6 million, Pure Energy’s stock has risen 20% over the past 12 months.

With a market cap of $112 million, Horizon Minerals (OTC: HZNM) has enjoyed a stunning upward trajectory. Over the past 12 months, shares have rocketed 1,816.6%, largely on the strength of its highly valuable lithium mining assets in Nevada.

In late 2016, Horizon Minerals acquired 1,003 claims covering 20,600 acres of land in Nevada’s Great Basin, a region that the United States Geological Survey has found to be lithium rich.

Lithium X, Pure Energy and Horizon Minerals could become acquisition targets for deep-pocketed companies like Tesla and GE that are looking to secure a steady supply of lithium. But keep in mind, small-cap mining stocks tend to be volatile, highly speculative and only suitable for aggressive investors.

Readers regularly ask me about the prospects of alluring but thinly capitalized stocks, especially in fast-growing areas such as medical marijuana. I usually respond buyer beware.

For a lithium play with a higher level of safety, consider Albemarle (NYSE: ALB). Based in Charlotte, North Carolina, Albemarle operates lithium mines in Nevada but it’s also diversified into other areas such as specialty chemicals. With a market cap of $10.3 billion, the company provides lithium compounds for applications in batteries, high-performance greases, car tires, plastic bottles, pharmaceuticals, and a host of other industrial applications and consumer products.

Over the past 12 months, Albemarle has ridden the lithium “gold rush” to see its share price jump 74.2%, with room for further rapid appreciation. The average analyst estimate is that earnings growth will reach 15.3% next year on a year-over-year basis, and 6.5% over the next five years on an annualized basis.

Another stable play on lithium is Panasonic (OTC: PCRFY). With a market cap of $24.5 billion, the Japan-based consumer electronics giant is a major supplier of lithium batteries and was the co-builder of Tesla’s lithium battery gigafactory.

Under its agreement with Tesla, Panasonic manufactures and supplies lithium-ion battery packs and cells for Tesla, thereby making the Nevada factory a significant future source of lithium-based revenue for Panasonic.

Panasonic’s stock has jumped 41.3% over the past 12 months, with more potential upside. Analysts expect earnings to grow over the next five years by 9.8% on an annualized basis.

Gilead Sciences: Too Timid?

We now turn our attention to another industry with high risk-to-reward trade offs: biotechnology.

In response to my February 14 article on biotech stocks, titled As The Rally Resumes, Biotech’s Bargain Bin Expands, I received this query from a reader about Gilead Sciences (NSDQ: GLD), which develops treatments for unmet medical needs:

Thank you for continuing to publish interesting takes on the markets. Regarding your comments today about bio pharma being cheap, at least relative to the market, I wanted to get your opinion regarding Gilead. I realize that their big hepatitis drug did not sell as abundantly in the most recently completed quarter, but this stock just seems really cheap to me. Any thoughts?” — Brad G.

I’ll let Jim Pearce, chief investment strategist of our flagship publication Personal Finance, answer that question about Gilead, which saw its stock drop last week in the wake of disappointing operating results. As Jim explains:

“Everyone knows what Gilead’s problem is: sales of its flagship drug for Hepatitis-C are declining, and it doesn’t have a way to make up the deficit. Clearly, Gilead has a problem.

The problem isn’t money, since Gilead has $30 billion in the bank. The problem also isn’t a lack of businesses to buy… But for reasons known only to them, the senior management team at Gilead has failed to act as its share price has dropped in half over the past eighteen months…

Gilead needs to make a quick, bold move into the cancer immunotherapy field by acquiring one or more R&D firms with a promising product. In an unforgiving stock market such as this one, the price of procrastination is too high.”

Got a question? Shoot me an email: — John Persinos

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