Invest in This Commodity’s Supercycle

by Nicholas Vardy
Lithium_Batteries

Just over 200 years ago, Swedish chemist Jacob Berzelius revealed the discovery of a "very strange" new metal.

He named it "lithium."

Fast-forward to the 21st century...

And thanks to the need for powerful, lightweight, rechargeable batteries...

Every electronic gadget you've owned in the past 15 years has contained lithium.

The Electric Vehicle Revolution

With the widespread adoption of smartphones, laptops and tablets, demand for lithium has exploded over the past decade.

In 2016, J.P. Morgan estimated that the market for lithium carbonate was approximately $1 billion.

By 2030, it's expected to top $50 billion.

That works out to a compound annual growth rate of nearly 30%.

Yet mobile devices aren't the primary drivers of future demand...

It's the one-two punch of the electric vehicle (EV) and renewable energy storage.

Morgan Stanley estimates EVs account for approximately 1.1% of global new car sales.

That is expected to jump to 9.4% by 2025 and 81% by 2050.

Bloomberg estimates that annual global EV sales will increase from less than 1 million units this year to more than 24 million units by 2030.

And last September, China announced it was planning a timetable to completely phase out production and sales of fossil fuel cars.

An average EV requires 100 times more lithium carbonate than a laptop does.

No wonder global carmakers from Tesla to Volkswagen to BMW are scrambling to lock in lithium supplies.

Tesla is even in talks to take a stake in the world's No. 1 lithium producer, Sociedad Química y Minera de Chile (NYSE: SQM).

The Dark Horse... Energy Storage

Few investors ever think of energy storage as a source of demand for lithium. But lithium powers the batteries that store renewable energy generated by solar panels and wind turbines.

With the cost of lithium-ion batteries declining, battery storage is now economically feasible for many energy storage applications.

As a result, the use of wind turbines and solar panels is soaring.

Germany - the world's fourth-largest economy - generated 31.6% of its electricity from renewables in 2015. (Its goal is to reach more than 80% by 2050.)

As renewable energy expands, so too will the demand for large, lithium-powered storage batteries.

A Solution for Lithium Investing

The price of lithium has almost tripled over the past 36 months.

No wonder investors want to invest in this red-hot asset.

But I see two broad challenges.

First, it's almost impossible to invest in lithium directly.

You can't buy lithium futures contracts or swaps on any major commodities exchange.

Second, four significant producers dominate the lithium supply market.

Together, Albemarle Corp. (NYSE: ALB), FMC Corp. (NYSE: FMC), Sociedad Química y Minera, and China's Tianqi Lithium Corp. accounted for 83% of global supply in 2015.

Unfortunately, by investing in lithium directly, you're often stuck with tiny, speculative microcap stocks.

Instead, enter my favorite lithium investment vehicle: Global X Lithium & Battery Tech ETF (NYSE: LIT).

This exchange-traded fund (ETF) neither tracks the price of lithium directly nor looks at lithium as a commodity.

Instead, it tracks a market cap-weighted index of global lithium miners and battery producers. And it plays into the EV and renewable energy storage trends.

The ETF holds three of the "big four" lithium producers mentioned above (with the exception of Tianqi Lithium Corp.), which together represent 41% of the fund.

It also invests in large lithium users, including Tesla and Samsung, the No. 1 smartphone maker worldwide.

The takeaway?

Morgan Stanley recently forecast that lithium prices may plummet in the near future due to increasing supply from Chile.

Perhaps that's true in the short term, but I generally disagree...

The fundamental investment case for lithium is robust and long term.

There's just not enough current supply of lithium to meet demand...

And that demand is exploding much quicker than the supply is.

That makes investing in lithium a winning proposition.

After all, no one can repeal the law of supply and demand.

Good investing,

Nicholas

Thoughts on this article? Leave a comment below.

A Tisket, a Tasket, Add Lithium to Your Basket

Remember during the 2016 presidential campaign when Hillary Clinton called her detractors a "basket of deplorables"? Not many people I know thought that was very wise - or lucrative.

What's both wise and lucrative is investing in another type of basket: ETFs. Nicholas is a big believer in them. And why wouldn't he be? After all, trading them is his specialty... and they'll be the stars of a new service coming your way this spring.

But if you're more of the "go it alone" type, Energy and Infrastructure Strategist David Fessler recommends Lithium Americas Corporation (NYSE: LAC) as one of your best alternative bets...

My presentation at the Secret Capital Summit last September was focused on the exploding demand for the raw materials needed for electric vehicle (EV) batteries.

As of February, Lithium Americas Corporation (NYSE: LAC) has handed us 80.6% gains since we added it to the Advanced Energy Strategist portfolio last April... and there's plenty of upside ahead.

That's because the mass consumer migration to EVs is in its infancy.

What's driving the shares higher? It's the anticipation of a supply shortage that could rear its ugly head as early as this year.

In his August 2, 2017, letter to shareholders, Musk indicated that Tesla (Nasdaq: TSLA) had 455,000 net Model 3 orders, and new orders were being placed at the rate of 1,800 per day.

Here's something else he had to say: "With no advertising, paid endorsements or guerrilla marketing campaigns, Model 3 net reservations have still steadily climbed every month and have even accelerated further in recent weeks."

Elon Musk believes the demand for the Tesla Model 3 could hit 700,000 units this year. I think there's an excellent chance of that happening.

The bottom line is that the demand for lithium, cobalt and other metals used in EV production is skyrocketing. Perhaps that's why, of the six cobalt and lithium stocks in our portfolio, four of them currently have double-digit gains, and one is already up into triple-digit territory.

I can't stress enough how great an investment opportunity we have in front of us today. As I've said before, it's time to back up the truck and buy.

- Donna DiVenuto-Ball with David Fessler

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