Shrey Patel and Jonah Raskas of The Lithium Spot run through three things investors should consider before investing in lithium.
By Shrey Patel and Jonah Raskas of The Lithium Spot
Like any hot sector, many investors are looking to take part in the lithium boom. The problem is that there are so many companies to sift through on different exchanges that all claim to have top-tier assets. For active investors who want to put their cash in a specific company instead of blindly choosing an ETF, what’s the best way to find investment-worthy stocks? Here we present a few tips to get started.
1. Risk tolerance
The first thing that investors should always determine is their risk tolerance. In the lithium-mining space that will allow them to decide if they want to place bets on pre-revenue exploration startups that are years away from production, existing producers that have much higher valuations or something in between.
A lot can go wrong in the four to seven years it takes hard-rock producers to get to production, and that number rises to over seven years for brine producers. Those are long time horizons, so investors must understand the risks before determining which companies fit their portfolio. And for those that don’t like to take on that type of risk, the larger producers still present good upside potential to any portfolio.
2. View on the fundamentals
Another important factor to keep in mind is the fundamental picture. Given that lithium is a metals and mining play, it all comes down to lithium pricing, which is influenced by supply and demand. Thus, any investor looking at the space must first formulate an opinion on where pricing is headed by looking at the supply pipeline, as well as the outlook for demand. To achieve this task, there are a number of resources. Company presentations and third-party analysis like ours are great summaries, but the best option would be speaking with professionals and experts involved in the industry themselves to learn what they know. At The Lithium Spot, we try to speak with as many stakeholders as possible to gain unique insights to present to readers for their research process.
Additionally, this step can help assess risk tolerance. If after doing thorough research an investor believes in a favorable long-term outlook for lithium miners, they may be more willing to take on risky earlier-stage mining hopefuls. Alternatively, if they believe the rally is going to be short lived and will last only a few more years, they can lean more towards existing producers that are able to take advantage of the favorable market.
3. Pick the stocks
After determining risk tolerance and formulating a view on the overall industry fundamentals, investors can then move on to evaluating individual stocks. When analyzing individual stocks there are a number of things to hone in on, including management, competitive advantages, mining assets and capital structure and funding, among others. Then all of that information can be used to come up with a proper valuation for the company in question, both currently and in the future. Finally, that can be used to determine whether it is a worthy investment.
By no means are we saying that the above is an exhaustive list for any investor looking at the lithium sector. But it is definitely a great starting point to cover many of the necessary components in any investment evaluation process!
About the authors — Jonah’s passion for the Lithium space is fueled around Market Research, valuation and of course, making some smart investments! His passion for Market Research started out early on his career when he worked in the White House’s SpeechWriting office. There, Jonah was tasked with researching for the President’s and Vice President’s speeches on a diverse set of topics ranging from Defense to Agriculture to Policy Announcements. Following that, Jonah’s career took a turn to Wall Street where he worked for two separate investments banks. It was there that he worked on the capital markets desk getting an up close sense of valuation and the market. He worked on many different offerings ranging from IPO’s to Secondary offerings as well as in depth analysis on a wide range of companies. Most recently, Jonah’s core strength of market research has helped him earn widespread praise from a variety of consulting and MBA internship opportunities. Having just completed his MBA at the Gabelli School of Business (summa cum laude) in Marketing & Accounting, Market Research is again at a focal point for his job in Brand Management for a Fortune 500 company.
Shrey’s interest in Lithium began when he was asked to cover the space during his time on the specialty chemicals team at GAMCO Investors. Interning for a well-respected analyst, and a famed value investor, he learned a tremendous amount while researching and writing an in-depth industry report on the rapidly emerging Lithium sector, and covering Albemarle Corporation. With an undergraduate background in Biomedical Engineering and Economics from UNC (University of National Champions!), and an MBA in Finance and Accounting from the Gabelli School of Business, Shrey approaches the industry from both a technical as well as a business perspective. This background also affords him the ability to get into the nitty-gritty fundamentals while maintaining a perspective on the broader, global interconnections of the industry and economy. Through his time on both the buy and the sell-sides, as well as his experience managing capital raised from friends and family, Shrey brings tremendous research and investing insight to the table.