Our 4 favourite lithium ASX shares right now: Wilsons

The major battery ingredient is seeing soaring demand due to the global transition to green energy.

| More on:
Deterra share price royalties top asx shares represented by investor kissing piggy bank

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

ASX shares involved in lithium production continue to be popular, and for good reason.

Analysts at Wilsons reckon demand for the element will expand six- to eight-fold by the end of this decade.

"We don't believe lithium supply can keep up with this level of demand growth," equity strategist Rob Crookston said in a memo to clients.

"Lead times for lithium mines (from discovery to production) can take 5+ years, so there is no quick fix."

With the rising popularity of electric cars and other innovations that require powerful batteries, the Wilsons team is forecasting potentially "large supply deficits from 2025 onwards".

"While we expect the price of lithium to fade over time, the forecast price profile seems inconsistent with the forecast supply/demand balance," said Crookston.

"We believe there could be significant upside to the forecast long-term price if there is a supply-demand imbalance and the current price profile looks too pessimistic."

'Significant upside' to this company's earnings

So which ASX shares is Crookston's team buying to invest in this thematic?

The memo mentioned four stocks, but out of them Allkem Ltd (ASX: AKE) is Wilsons' "preferred" exposure.

The analysts cited the company's position as one of the world's five biggest producers, processing three different forms — brine, spodumene and hydroxide.

"While we do not expect lithium prices to remain elevated at these levels over the next 12 months, we believe they will be significantly higher than consensus, which is currently pricing at ~US$36,000/tonne (vs. spot of US$73,500/tonne)," said Crookston.

"If this is the case, there should still be significant upside to Allkem's earnings, leading to analyst upgrades." 

The Wilsons team also likes the geographic diversity, with operations spread out in Australia, Argentina, Canada and Japan.

Its dominance in the market could also see it attempt some takeovers.

"We believe consolidation is likely in the pipeline for Allkem, one of the biggest players in South America's 'Lithium Triangle'. The company could acquire smaller explorers to increase its capacity."

Three more lithium stocks to buy

Pilbara Minerals Ltd (ASX: PLS) is a pure play lithium producer that the Wilsons team also likes.

"Spodumene production is expected to increase to ~1 million tonnes by FY28, up from 360 kilo tonnes in FY22."

Moreover the analysts named IGO Ltd (ASX: IGO), which extracts and processes several different commodities involved in green energy, such as nickel, copper and cobalt, as well as lithium.

Perhaps Wilsons' stock recommendation that is least specialised in lithium is Mineral Resources Limited (ASX: MIN).

"Diversified exposure to predominantly lithium and mining services, as well as (low quality) iron ore," said Crookston.

"A speculated NYSE spin-off of the lithium business could untap hidden value in the business."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Male hands holding Australian dollar banknotes, symbolising dividends.
Dividend Investing

Own Vanguard ASX ETFs? Here's your next dividend and when it's coming

Vanguard has revealed the estimated dividends and payment date for scores of its ASX ETFs today.

Read more »

Excited couple celebrating success while looking at smartphone.
Dividend Investing

Analysts expect these ASX dividend stocks to offer 5% to 7% yields

Let's see which shares are being tipped as buys for income investors.

Read more »

2 workers standing in front of a wind farm giving a high five.
Dividend Investing

Is the AGL share price a buy for passive income?

Can this energy business provide strong dividend income?

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Growth Shares

Where I'd invest $5,000 into ASX 300 growth shares

These stocks have excellent growth potential.

Read more »

Cheerful boyfriend showing mobile phone to girlfriend in dining room. They are spending leisure time together at home and planning their financial future.
Cheap Shares

This ASX dividend share could be the biggest bargain you can buy

This business is both really cheap and offers big dividends.

Read more »

Happy couple enjoying ice cream in retirement.
Dividend Investing

Buy these ASX dividend shares for big yields

Analysts expect these buy-rated shares to offer very generous yields.

Read more »

a woman sits at a computer with a satisfied expression on her face in a white room with greenery outside her window.
Growth Shares

The ASX growth stock up 10% this year with more room to move

This broker believes there’s still more in the tank for this telecommunications company 

Read more »

guy helping girl invest in shares and dividends
Dividend Investing

1 ASX dividend stock down 22% I'd buy right now

This business could provide everything that cautious income investors are looking for.

Read more »