Today, we will look at some of the best lithium stocks on the ASX 200 to buy for 2022. 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.
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The Best Lithium Stocks on the ASX in 2022
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 2022 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.
Ioneer (ASX:INR) aims to be a world-class lithium producer supplying the burgeoning EV and battery market in the USA.
The company’s facility will be located in Nevada at the Rhyolite Ridge which holds the largest known lithium and boron deposit in North America.
Though ecological issues at the site have made news, the company is positive it can work with the relevant authorities to reach a solution.
The company has been a major beneficiary of the tailwind behind electrification due to climate awareness and record-high fuel prices, the Biden administration’s inclination towards decarbonization, and the DOE’s (Department of Energy) willingness to help fund projects that align with this policy.
Mineral Resources (ASX:MIN)
Mineral Resources Ltd. (ASX:MIN) is a large, integrated Australian mining company with a significant market presence in both mining services/infrastructure and the production of commodities such as lithium and iron ore.
The company has enjoyed excellent business conditions in recent times in mining services, while its commodities business was hit by the correction in ore prices in the second half of 2021.
Its fortunes were, however, buoyed to some extent by a burgeoning lithium market.
It has three major divisions: Mining services, where the company is a contract service provider for mines owned by other companies; Commodities, where the company is an owner, producer, and processor of iron ore and lithium products through Joint Ventures and complete ownership; and lastly, Energy Resources, the company’s natural gas division that owns a production site to provide stable and emission-free energy to its client and own production sites.
Core Lithium (ASX:CXO)
Core Lithium (ASX:CXO) is an Australian mining company aiming to become one of the biggest exporters of lithium to the Asian region.
The company has seen its stock skyrocket a monumental 887% over the past 12 months due to the ever-increasing price of lithium and substantial progress towards the commencement of production.
The company claims it will be one of the lowest-cost lithium spodumene producers in the world once its Finniss mine enters production.
The project is also highly capital-efficient, given that its production is based on the simple DMS process which uses just gravity and water.
This is two-thirds cheaper compared to the floatation process.
Moreover, the Finniss project is now fully funded.
The company will potentially enter production in 2H’FY22 and produce about 197,000 mtpa.
Pilbara Minerals (ASX:PLS)
Pilbara Minerals Ltd (ASX:PLS) is one of Australia’s biggest listed pure-play lithium mining players.
The company has lately been in the limelight due to the solid rally in its stock and its recent acquisition of Altura Mining for $175M.
The deal is a good fit for Pilbara Minerals because Altura’s Pilgangoora mine is adjacently located, making the acquisition easy to integrate and generate economies of scale.
Pilbara Minerals was also recently inducted into the ASX200, Australia’s flagship index.
The company’s stock has been having a great run being front-and-centre of the decarbonization megatrend, a thematic investor favourite.
Piedmont Lithium (ASX:PLL)
Piedmont Lithium (ASX: PLL) is developing a mine for lithium hydroxide and its byproducts.
The stock has benefited from the recent market rally in tech and clean energy stocks because it is linked to the rising popularity of EVs. Lithium is core to the batteries used in EVs and for grid storage.
It is also used in the batteries of laptops and cell phones, as well as in the glass and ceramics industry.
The company has also inked a deal in September 2020 to supply one-third of its spodumene production to Tesla.
Additionally, the lithium industry is expected to grow 37% YoY.
Bonus Stock: Magnis Energy Technologies (ASX:MNS)
Even though Magnis Energy Technlogies (ASX:MNS) is not a lithium producer, the company is a battery maker that is further up the chain and uses lithium as an input.
Exposure to Magnis could give your portfolio some diversification away from lithium whilst still givning you good exposure to the move towards clean energy.
Magnis Energy Technologies is an Australian company involved in the development of cheap and nearly 100% recyclable batteries that address the global decarbonization megatrend.
Magnis Energy Technologies is developing its product through strategic partnerships to garner expertise in various segments of the battery value chain.
Its proprietary battery is claimed to outperform current technologies while being cheaper and environmentally friendlier.
The company also has great verticals, with an investment in a high-quality long-life mine.
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.