We know which sector of the market to watch this week: Lithium stocks. The tip is in from New York.
Here’s why. Last week, major lithium player Albemarle Corporation [NYSE:ALB] revised its demand outlook up in a big way. The stock rallied 6% last Thursday.
The company now expects lithium demand to grow 20% a year until 2025.
Yep…you already know the reason. The uptake of electric cars and large-scale batteries. It might be a familiar story but it’s a new dynamic.
It’s also a perfect example of what I talk about in my new research report. 2018 knocked down a lot of sectors and shares.
Many of them have a much brighter outlook than you would think, based off price action alone.
Lithium stocks are bruised and battered now. I don’t expect them to stay that way.
You have to know a little about what’s happened here. Lithium stocks had very strong runs in 2016 and 2017.
But last year, the word got out that there were too many projects and that excess supply would crash the price. Signs within China added to the worry.
Nobody wants to be the last one standing when the music stops. The stocks got dumped.
However, so much of the fear was based around projections, not hard numbers. These can change. See above.
Right now, lithium looks to be in the perfect spot, as far as a long-term hold in the commodity space goes. Demand is going to fire for a long time…and supply will struggle to hold pace.
You simply cannot turn on a lithium mine — or any other battery metal mine, for that matter — with ease.
It takes a huge amount of time and money to move through the stages to bring a mine into development.
And that doesn’t even include finding the staff to make it happen.
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Lithium is a niche business. There just aren’t that many qualified people in the field relative to the global scale brewing.
Anyone with existing production is going to be in a sweet spot for a long time.
Look at some of the recent announcements…
A booming industry for years
For the month of January, electric vehicle sales within China were up 175% year on year.
That’s happening despite the broad market for auto sales being as weak as it has been for years over there.
It will be a monster year if they keep posting numbers anywhere near as good as that over the coming months.
That’s not all…
Porsche has come out and said it’s going to ‘electrify’ its most popular model — the Macan. This model was responsible for a third of Porsche’s sales in 2018.
The chief executive of the group wants every second Porsche to be electric or a hybrid within six years.
Separately, Land Rover and Nissan are now pulling planned investments based around diesel-powered cars. Those are now well on the wrong side of history.
BMW and Daimler are already positioning for the decline of individual car ownership. They want to build an ‘urban mobility’ network.
Whether or not they can catch Tesla, Inc. [NASDAQ:TSLA] remains to be seen. Tesla’s lead here, in terms of its accumulated data, is way beyond any of its rivals.
The destruction of the traditional auto industry is going to be something to watch over the next decade.
There’s a large opportunity here…
Sell off? An opportunity to buy…
It just depends on your timeframe.
Lithium stocks may not take off this quarter or the next.
But if you’re prepared to hold for the next few years, now looks like a very strategic entry point. It’s an example of how the recent downturn in the market can become an opportunity.
It’s also a useful reminder that perception is reality in the market. I’ve written before about the huge and compelling outlook for lithium.
But you won’t make a buck from it until other investors agree — and start bidding aggressively to get in on the action.
I think this is happening across the wider market. Last year, people stayed on the sidelines. I tried to point to a lot of positives. It didn’t matter.
But the cycle turns. For example, one of the fears last year was the pace at which the US central bank was running down its portfolio.
The Fed now says it’s going to keep this higher than previously guided. That’s part of what has boosted the market since late December.
If you’d had the nerve to buy in at the start of the year, you would have done very well. The ASX is on track to pay out a record number of dividends this financial year too.
You see? There’s plenty of money to be made in stocks if you’re in the right sectors.
For my best five ideas to buy right now, go here.