The lithium battery market has been increasingly in business news headlines as the rare earth mineral is increasingly important to companies operating in clean energy and transportation sectors. According to Koyfin, lithium carbonate prices have fallen more than 78% over the past few months. An oversupply of the rare earth mineral is one of the reasons prices reached new lows in 2023. The other reason is most likely related to the slowing demand for electric vehicles (EVs) that many market analysts, including Tesla’s (NASDAQ:TSLA) CEO Elon Musk, have foreseen.
As a result, several lithium stocks have seen their share prices and valuations shatter. For investors desiring to profit from the battery markets’ long-term prospects, their best bet may be to start considering these three undervalued lithium stocks.
Ganfeng Lithium Group (GNENF)
Ganfeng Lithium Group (OTCMKTS:GNENF) is a China-based company that happens to be one of the world’s largest producers of lithium products. The Chinese lithium producer has established strategic partnerships with several battery and EV manufacturers, including LG Chem, Volkswagen (OTCMKTS:VWAGY), BMW (OTCMKTS:BMWYY) and Tesla.
Outside of mining for lithium in China, the company gained stakes in several lithium projects worldwide, including Caucharí-Olaroz in Argentina, Sonora in Mexico, Mt Marion in Australia and Bacanora in the U.K. Ganfeng Lithium’s financials have struggled in recent quarters. In particular, the company has been hit by an oversupply of lithium in China.
The lithium producer forecasted a 70 to 80% drop in profit for 2023. In turn, investors have been lukewarm on Ganfeng Lithium’s stock. The company’s share price has fallen 72% over the past 12 months. That means Ganfeng is currently trading at 8x forward earnings, making it immensely undervalued. Despite these financial setbacks, Ganfeng is still pursuing agreements and partnerships with EV manufacturers. The company recently announced a 4-year lithium supply agreement with Hyundai Motor (OTCMKTS:HYMTF).
As the economy continues to recover, so should demand for EVs and lithium carbonate. Patient investors are likely to be rewarded in this context.
Sociedad Quimica y Minera de Chile (SQM)
Sociedad Quimica y Minera de Chile (NYSE:SQM) is the second-largest producer of lithium in the world, with operations in both Chile and Argentina. The company also operates one of the largest mines in the world at Salar de Atacama, Antofagasta, Chile. Salar de Atacama not only provides a low-cost and high-quality source of lithium brine but is one of the largest and richest salt flats in the world. Like many lithium producers, SQM had an excellent 2022 due to elevated lithium prices. SQM reported revenue of $10.7 billion and net income of $3.9 billion, representing YoY revenue growth and net income margin of 274% and 36%, respectively.
Unfortunately, the company can expect its 2023 fiscal year results to not be as stellar due to the precipitous fall of lithium carbonate prices throughout the year.
However, there are still developments to be hopeful about. Tesla announced the opening of its first store in Santiago, Chile, which would also represent its first store in Latin America. The famed EV maker grabbing market share in Latin America could eventually lead to stronger ties between Tesla and SQM. Moreover, the lithium producer’s shares are trading cheaply at 8x forward earnings, and this could also be an opportunity for investors waiting for the lithium market to rebound.
Sigma Lithium (SGML)
Originally from Canada but headquartered in Sao Paulo, Brazil, Sigma Lithium (NASDAQ:SGML) wholly owns and operates the Grota do Cirilo project in Brazil, one of the largest hard-rock lithium deposits in the world. The project has an estimated resource of 54.8 million tons of spodumene ore at an average grade of 1.4% lithium oxide. Sigma Lithium’s project is located close to major ports and infrastructure in Brazil, giving it access to key markets in North America, Europe and Asia.
The company also has a long-term off-take agreement with Mitsui & Co. (OTCPK:MITSY), a Japanese trading giant that previously provided Sigma Lithium with financing and logistics support. The company completed phase 1 of the project early in 2023, and the producer has already begun making lithium shipments. Phase 1 annual free cash flow is expected to be approximately $455 million. Phases 2 and 3 await approval and, once completed, would jolt Sigma Lithium’s annual cash flows to $1.8 billion.
Sigma Lithium’s stock has dropped 53% over the past 12 months, primarily due to the weakening market situation for lithium. Shares are currently trading at a valuation of 5x forward earnings, which is cheaper than most other lithium competitors.
On the date of publication, Tyrik Torres 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.