The Global X Lithium & Battery Tech ETF (NYSEARCA:LIT) shed over 15% of its market value since the turn of the year, suggesting the lithium industry is subject to systematic headwinds. Although lithium stocks have surrendered value, we need to put matters into perspective before committing to long-term investment decisions.
Firstly, consider that, like most commodity prices, lithium prices are cyclical. Therefore, interim drawdowns in lithium stocks are normal. Moreover, many mid-to-downstream companies have faced slowing end markets driven by macroeconomic factors such as interest rates and peak inflation. In essence, lithium stocks’ year-to-date struggle seems temporary. As a matter of fact, the industry is set to expand by 12.8% per annum until 2030, suggesting long-term trend growth remains intact.
The lithium value chain is in its early stages of development, meaning mispricing in industry participants’ stock values is common. Therefore, I dialed in on the arena and picked out three lithium stocks I believe are undervalued with significant growth prospects.
Let’s discuss each stock in detail.
Standard Lithium (SLI)
Standard Lithium (NYSE:SLI) is a U.S.-based lithium producer. The firm’s arsenal spans 150,000 acres of permitted leases and three production plants. According to its geophysical results, Standard Lithium has proven resources of 3,140,000 tonnes of lithium carbonate equivalent.
Although an established exploration entity, Standard Lithium has yet to achieve commercial production. However, the company’s latest fiscal report communicated promising numbers. Standard Lithium’s South West Arkansas project’s preliminary feasibility study showed an upside case of $4.5 billion in lifetime net present value cash flows at an internal rate of return of 41%. Moreover, commercial production is set to begin in 2027, with significant profitability anticipated.
Furthermore, a renewed definitive feasibility study of Standard Lithium’s LANXESS South extraction plat conveyed promising results. The plat is expected to deliver early production in 2026 with a lifetime net present cash flow value of $772 million and an internal rate of return of around 30% estimated.
SLI stock is clearly a risky bet. Nevertheless, I am willing to say that long-term embedded growth is likely. Moreover, SLI stock’s relative strength index of 33.51x indicates that it is borderline oversold. Therefore, this prompts me to deem it a Strong Buy.
Sigma Lithium (SGML)
If you’re seeking a primary electric vehicle supplier, Sigma Lithium (NASDAQ:SGML) is your go-to. The company produces pure pre-chemical lithium through its primary production sites and tailings facilities.
I added Sigma Lithium to the mix because a noteworthy catalyst has emerged. As shown by its third-quarter results, the company has achieved its first revenue-generating quarter. Sigma delivered $97 million in quarterly revenue and net profits of $36.4 million. I mean, a net profit margin of 37% in your first revenue-generating quarter isn’t too shabby, right?
It is still too early to assign credible price multiples to Sigma Corporation. However, its fundamental prospects are intact. For example, the company expects its production to reach 130,000 metric tonnes by December amid progressive facility development. In addition, Sigma Lithium is building on numerous greenfield exploration projects while owning a cash position of $28.2 million, increasing the odds of succinct mine development.
SGML stock is trading above its 10 and 50-day moving averages while remaining below its 100- and 200-day moving averages. As such, it is safe to conclude that SGML has embarked on a momentum trend after news regarding its revenue generation occurred.
We are looking at a winner here.
Livent (NYSE:LTHM) stock is primed for a tactical opportunity. I say this because the company’s $10.6 billion merger with Allkem (OTCMKTS:OROCF) has officially received regulatory approval, paving the way for a new entity named Arcadium Lithium.
Although subject to the approval of Allkem’s shareholders, the agreement looks set to conclude by January 4th, which will see Livent’s shareholders receive 2.406 shares in the new entity, while Allkem’s shareholders will receive exchange on a share-for-share basis. Arcadium Lithium will be the world’s third-largest lithium producer, with significant exposure in up-to-midstream activities.
Livent’s net income margin of 40.77% speaks volumes. However, the combined entity could proliferate proceedings by sharing human capital and financial resources. As such, Livent’s current shareholders will likely benefit from enhanced residual value in the coming years.
Regulatory approval for Arcadium Lithium consolidated a month ago, and LTHM stock has ticked up by more than 4% ever since. I believe additional gains are in-store due to the fundamental potential of the new entity and the favorable deal received by Livent’s shareholders.
On the date of publication, Steve Booyens 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.