How to Invest in Lithium Stocks

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One of the hottest resources in recent years has been lithium. It’s still an exciting story, except it’s not just lithium dominating headlines anymore. Its friendly cousin, cobalt, is also a hotspot for investor attention.

But most investors just want to know how to invest in lithium.

How to get started in lithium investment

I believe the best, and potentially most profitable, way to invest in lithium is to buy publicly-traded lithium stocks. That means setting up a share-trading account, depositing some of your investment money, and then buying lithium stocks on a stock market.

See, not so hard.

The slightly harder part of learning how to invest in lithium is understanding which lithium stocks to buy.

Finding the best lithium stocks

Before you even get to the companies, you need to get an understanding about why lithium is as hot a topic as it is, and what’s making the market so hot right now.

In short, the answer is: electric vehicles and electric home-battery storage units. More specifically, it’s the future demand for these ‘green’ energies.

Now, at this point, we should point out that much of the incredible news surrounding the lithium market, and the sharp appreciation in lithium prices, is all based on this expected future demand.

As it stands, right now, the world doesn’t currently make that many all-electric cars. And, as for home-battery storage, well, just pop around to your neighbours to see how many of them are sporting Tesla’s Powerwall.

This is a future prediction and, as such, it comes with a high degree of risk. After all, none of us can really predict the future. We apply our expertise and experience to bring you the most exciting companies that we believe could potentially tap into huge gains from these massive resource booms. But, at the end of the day, there is no 100%-accurate crystal ball.

But if you’re happy with the risk this kind of investing involves, then read on, as you’re in for a treat.

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The lithium investment opportunity

You might think that investing in lithium stocks is difficult. But it’s not as difficult as you think. The first — and perhaps most important — piece of advice you need is this: You have to familiarise yourself with the market.

That means reading and soaking up information from reputable and reliable sources. You can get part of this information from resource-specific sites — often ones that actively enable the buying and selling of metals and minerals. But you won’t often find particularly good or accurate information from the mainstream media.

In fact, if you read about lithium in one of the major newspaper, we’d suggest putting it in the trash.

You can also subscribe to Money Morning Australia, or Markets and Money, where we write about companies involved in lithium, nickel, cobalt and other small and micro ASX stocks that could potentially multiply your investment many times over.

You might not like or agree with everything our editors write, but, sometimes, the truth hurts. I can guarantee we’ll make you think, empowering you to make your own financial decisions with the most in-depth and unique coverage you’ll find anywhere on the market.

And when it comes to lithium stocks and how to best invest in lithium, well, you’re in luck, because you’re spoilt for choice in a market that’s still hot for investors.

There are a number of companies involved in lithium at present, such as Orocobre Ltd [ASX:ORE], Galaxy Resources [ASX:GXY], Pilbara Minerals [ASX:PLS] and Neometals Ltd [ASX:NMT].

These all have lithium plays that they’re hoping to develop in the coming years to meet the estimated exponential rise in demand for lithium.

We’re not advising that you invest specifically in these companies. Far from it. They’re simply an example of the kinds of companies that are involved in this potentially huge space — provided the market plays out the way these companies expect.

Lithium demand from electric vehicles

Right now, the car industry is moving towards all-electric cars at a rapid rate of knots. There are a number of models available now, but the future includes new models from Porsche, Skoda, Volkswagen and Audi, to name a few.

Bloomberg New Energy Finance

Source: Bloomberg

If the uptake in EVs goes according to plan, the majority of these cars will be using lithium-ion-battery cells. This will produce a huge increase in demand for lithium.

But with only around 773,000 EVs sold in 2016, there’s a long way to go to get into the tens of millions. In 2016, there were over 76 million new car sales. That means just 1% of worldwide car sales were EVs.

That’s a big mountain to climb.

While there’s no doubt that, in the long term, the car industry will move to all-electric, it’s going to take time. We’ll have fully-autonomous cars on the roads well before the world becomes 100% EV.

That also means the lithium boom, and opportunity to invest in lithium companies, will continue. But the reality is that it will also probably go through a series of ups and downs along the way.

If you’re a short-term investor, buying lithium stocks now might prove to be too risky. But if you’re in it for the long haul, then, with the right companies — which means those with the right developments and agreements to sell their resource — there could still be huge potential for investors to get in on this hot sector.

About Callum Newman

Callum is a feature editor for Money Morning. He covers areas of interest arising from world markets and the global economy that could mean new investment opportunities for Aussie investors.

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