While the market for Lithium-ion (Li-ion) batteries has a ton of untapped potential, Tesla Inc.’s (TSLA) decision to build a $5 billion Gigafactory to meet its requirement of lithium-ion battery packs brought glaring focus on the shortage of supply of this emerging energy storage technology.
Li-ion batteries are a type of rechargeable battery in which lithium ions move from the anode to cathode during discharge, and from cathode to anode when charging. They are a popular choice by electric car manufacturers, and are used by General Motors (GM - Free Report) , Navistar International (NAV - Free Report) , BMW AG (BAMXF - Free Report) , Daimler AG (DDAIF - Free Report) , and Ford (F - Free Report) , among many others. Li-ion batteries are also used in cellphones, laptops, and other electronic devices, as well as in the aerospace and defense sector.
Last January, electronics company Panasonic (PCRFY - Free Report) agreed to invest up to $1.6 billion in Tesla’s Gigafactory. Kazuhiro Tsuga, President of Panasonic, said that "We are sort of waiting on the demand from Tesla. If Tesla succeeds and the electric vehicle becomes mainstream, the world will be changed and we will have lots of opportunity to grow.”
By 2020, Tesla expects its Gigafactory to reach full capacity, and by just next year, the electric car maker anticipates annual lithium-ion battery production of the factory to reach near its original goal of 35 gigawatt-hours by the same year, which equals the total global production from 2014.
Initial production at the Gigafactory began this past January, but there are other lithium-related companies investors should consider, some that manufacture lithium-ion batteries and those that directly handle the chemical element.
Let’s take a look at two stocks that are looking good at the moment:
Arotech Corp. (ARTX - Free Report) has two business divisions: Training and Simulation, and Battery and Power Systems. The Battery and Power Systems division manufactures and sells Lithium and Zinc-Air batteries and smart chargers for the military and to the private defense industry in the Middle East, Europe, and Asia.
ARTX stock has gained almost 15% over the past 12 months, and has an average earnings surprise of 125%. It’s a relatively smaller company, with a market cap of currently $84.51 million. Arotech, however, is in a fast-growing industry; Electronics-Military is in the top 15% of all industries ranked on the Zacks Industry Rank.
Arotech has a price-to-book (P/B) ratio of 1.41, lower than the industry average of 1.72. It has seen historic cash flow growth of 51.58% and historic EPS growth of 1,000%, both well above the industry averages of -1.34% and 14.24%, respectively. The second half of 2017 looks promising for Arotech. The company expects year-over-year earnings growth of 200% for the current quarter and 28.6% for the current year.
Albemarle Corp. (ALB - Free Report) is a major producer of fine and performance chemicals including lithium, bromine, and catalysts, and the company became the world’s largest supplier of lithium when it acquired Rockwood Holdings back in January 2015. Bloomberg estimates Albemarle’s share of the world’s lithium to be about 35%.
While ALB is a #3 (Hold) on the Zacks Rank, the company has beaten analyst estimates in the last four consecutive quarters, boasting an average earnings surprise of almost 9%. The company sits in a fairly strong industry as well; Chemical-Diversified is in the top 9% of all industries ranked on the Zacks Industry Rank. The Zacks Consensus Estimate for the company’s current year (ending December 2017) is $4.33 per share, reflecting 21.20% year-over-year growth.
Albemarle has a price-to-earnings (P/E) ratio of 26.04, above the industry average of 16.54. Its price-to-sales (P/S) ratio is 4.23, while its current PEG ratio sits at 1.80. ALB stock has seen historic EPS growth of 23.04% and historic cash flow growth of 3.41%.
As a whole, the lithium industry has blossomed over the last couple of years, and according to Frost & Sullivan, the global market for Li-ion batteries doubled to $22.5 billion in 2016 from $11.7 billion in 2012. Consumer goods and automobile sectors, in large part drove the demand.
And, the share of the automobile sector in the Li-ion battery market grew to 25% in 2016 from 14% in 2012, per the data from Frost & Sullivan. This represents a Compounded Annual Growth Rate (CAGR) of 37%.
As lithium emerges as a vital component in battery supply, in addition in the increasing use of Li-ion batteries in consumer electronic products and efforts to promote the use of electric cars by many governments to curb pollution, the demand for these batteries is expected to rise.
For an in-depth discussion on Li-ion batteries and the rise of electric vehicles, make sure to check out Zacks’ free report “Electric Cars: Which Companies Will Surge?” It profiles EV technology, EV manufacturers, and the future of the electric vehicle industry. Click here to see the free report >>
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Here's another stock idea to consider: Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon, electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
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