Today, we will look at some of the best lithium stocks on the ASX 200 to buy for 2023. These Australian lithium stocks have great leverage to one of the fastest growing sectors in Australia.
Lithium is a massively growing industry with the advent of clean energy and the move towards decarbonisation.
Lithium demand is expected to grow 9-fold by 2030 and is one of the hottest sectors on the ASX right now.
However, Australian lithium stocks tend to be in their infancy, with most mines just going into or growing production.
They tend to be higher risk and priced at a higher multiple and are generally driven by the potential that they have, leveraged to the clean energy industry.
However, having exposure to the best lithium stocks on the ASX will give your portfolio a lot of strong potential upside as the world moves towards decarbonisation.
The Best Lithium Stocks on the ASX in 2023
The hardest part about investing is the ability to process a large amount of information and factors to be able to navigate the macroeconomic and fundamental environment to find the best lithium stocks.
Our Research team has been hard at work uncovering the best Australian lithium stocks on the ASX in 2023 on a macroeconomic and fundamental basis.
We’ve outlined 2 stocks that we have found to either have good growth potential or a great story and what we consider to be some of the best lithium stocks on the ASX.
We believe these represent some of the best lithium opportunities the ASX has to offer.
Sayona Mining (ASX:SYA)
Sayona Mining (ASX:SYA) is an up-and-coming multi-asset miner based in Australia.
The company is on the verge of commencing operations at its Northern American Lithium (NAL) project in Quebec.
The company has had a head-spinning 1670% rally since its acquisition of NAL in December 2020 and brought it online in record time and at budget.
While the stock has been soft this year with a 21.1% underperformance to the ASX200 due to a correction in lithium prices, it is still rather fairly valued with a high chance of a serious re-rating once it commences downstream production and develops other assets.
Pilbara Minerals (ASX:PLS)
Pilbara Minerals Ltd (ASX: PLS) is one of the largest pure-play lithium producers with roughly 8% of global production. After a fabulous acquisition of Altura Mining, the company currently owns one of the best operational lithium assets globally at Pilgangoora. Since the acquisition, the company has largely focussed on execution, expansion, and capturing more of the value chain. Recent financial performance has been stellar, showcasing the company’s frugal cost structure and opening of global markets for spodumene. Investors were also awarded an inaugural dividend in 1H’23.
The lithium market has been budding with activity, showing clear signs that the global economy and major corporations are betting big on its prospects. Chile recently nationalized lithium assets, Allkem and Livent entered a merger to become a major player in the sector while Albemarle failed to secure Liontown Resources despite a multi-billion dollar bid. Major carmakers are upping the ante with LG, Ford, and BMW announcing major battery production facilities while GM invested $650M in Lithium Americas.
Allkem (ASX:AKE) is Argentina’s largest pure-play lithium miner with a global portfolio of lithium ore and processing assets.
The company has benefited significantly from the recent lithium bull run amidst the burgeoning demand for battery metal.
The company reported bumper results recently for 1H23 with multifold profit growth driven mainly by a price surge of its product.
The company, however, is on the cusp of multiplying the scale of its business substantially as new assets come online over the next couple of years.
Core Lithium (ASX:CXO)
Core Lithium is poised to become Australia’s next lithium producer at its Finniss Lithium Project which is located proximately to the Darwin Port in the Northern Territory.
The Finniss Project has a high-grade lithium resource and a 12-year mine life.
It is claimed to be a very capital-efficient and the lowest-cost spodumene lithium project as it uses simple and efficient DMS (gravity) processing. This process ensures lower cost and low start-up risk.
In addition, Finniss boasts of excellent supporting infrastructure and a logistics chain that is best suited among Australian lithium producers for supply into the high-demand Asian region.
The Finniss mine was officially declared open on October 10, 2022, making it the first lithium mine in production in the Northern Territory and Australia’s only lithium mine outside Western Australia.
IGO Limited (ASX: IGO) is an Australian-based mining company that focuses primarily on the exploration and production of nickel and lithium with a market value of $10.57 billion. Their operations are divided between these two valuable metals, which are essential components for batteries and other electronics.
The booming EV market has driven the increase of demand for lithium-ion batteries in electric vehicles and brought significant benefits through the strategic shift towards lithium production.
Despite a downturn in the lithium price due to oversupply, we believe lithium will make a comeback in the near future as the EV market continues to boom and demand starts to outstrip supply.
How We Find The Best Lithium Stocks To Buy
In general, the markets and stocks are firstly driven on a short-term basis via supply and demand imbalances.
This is the order flow on a day to day basis as investors buy or sell shares for different reasons.
This order flow is generally hard to forecast and requires strong technical analysis and understanding of the underlying market to properly time.
Australian lithium stocks are particularly hard to forecast on a technical basis. This is because most lithium miners and producers are still in the ramp up stage and are smaller capped. This means that institutional investors tend to stay away from them due to investment mandates and general lack of liquidity.
With the lack of institutional investors, the best lithium stocks tend to be driven more by rumours and retail investors. The lack of liquidity is also an issue.
Secondly, markets and stocks are driven by macroeconomic forces in the medium term.
Factors include but are not limited to changes in interest rates, consumer sentiment, government policies and so forth.
Understanding the nuances and how the different countries interact with each other in terms of trade and politics is key to understanding the forces that drive the markets as a whole.
Australian lithium stocks tend to be too highly influenced by macroeconomics and in particular, geopolitics as mines can be located in different countries and jurisdictions.
The best lithium stocks tend to be more qualitatively valued rather than quantitatively valued. In other words, Austrailan lithium stocks are valued on speculation as to the potential non-existent growth and earnings rather than what they are earning today.
However, the macroeconomic environment is still vastly important.
Understanding what they are selling, who they are selling to and who their established competitors help us understand the potential growth the company has.
Finally, stocks in the long term are driven by fundamentals.
Factors include but are not limited to quantitative factors such as earnings growth, profit margin and return on equity.
Qualitative factors include factors such as competition, operating environment, political and policy environment.
Fundamentals are highly important as we make assumptions and valuations based on the environment they will be operating in the future.
In unstable or highly regulated environments, understanding the potential pitfalls is the difference between buying a small cap stock with potential and one that is doomed to fail.
To be able to pick the best lithium stocks to buy, it is essential to combine market timing, macroeconomic and fundamental analytics.