On Tuesday, September 22nd, Tesla Inc. (TSLA) will hold its annual shareholders’ meeting in conjunction with a “battery technology day” where it is expected to reveal details about its latest innovations in batteries. TSLA has been developing battery cells for over a year, and now the company plans to produce them on its own.
Moreover, on September 11, Musk tweeted that “many exciting things will be unveiled” at the Battery Day event. The stock is already up 428.5% year-to-date and Wall Street cites the event as the “next catalyst” for TSLA’s skyrocketing share price.
Batteries have become crucial for Electric Vehicle (EV) with rising competition in the space. Lithium-ion batteries power all EVs and have many different material compositions. TSLA’s primary EV battery technology is NCA (based on nickel-cobalt-aluminum oxide chemistry). Musk is looking to secure the supply of these key ingredients. On TSLA’s second-quarter earnings call, Musk pleaded, “any mining companies out there, please mine more nickel.”
Hence, the increase in demand and price for battery components, primarily nickel and lithium, is a problem for TSLA, but it’s an opportunity for companies like Rio Tinto Group (RIO), Albemarle Corporation (ALB), Sociedad Quimica y Minera S.A. (SQM) and Lithium Americas Corp. (LAC). So, these stocks could continue flying higher after Tesla’s Battery Day.
Rio Tinto Group (RIO)
RIO engages in finding, mining, and processing mineral resources worldwide, with iron ore being the dominant commodity. The London-based company owns an integrated network of 16 mines in the Pilbara region of Western Australia and RIO extracts the bulk of its ore from this mine.
RIO has recently signed a memorandum of understanding with Turquoise Hill Resources (TRQ) on a long-term funding plan for the Oyu Tolgoi copper mine in Mongolia. The company has also approved an investment close to $200 million for the next stage of development of the lithium-borate Jadar project in Serbia. Moreover, the healthy demand for iron from China should continue to propel the price of iron ore over the long term.
RIO delivered a top-line of $9.68 billion for the second quarter ended June 2020, which was a 6.5% decline year-over-year. The gross margin for the quarter stood at 37%. The lockdown affected the global supply chain as both production and shipments declined along with a sharp drop in copper and aluminum prices. Nevertheless, the company managed to generate a free cash flow of $1.71 billion and declared an interim dividend of $1.55 for the quarter.
EPS for the quarter came in $1.02, declining 18% year-over-year. However, the company had successfully operated its global mines throughout the pandemic for the production of diamonds. Rising commodity prices should get reflected in RIO’s EPS in the coming quarters.
RIO closed Friday’s trading session at $64.42, gaining 16.7% year-to-date. The stock has grown more than 49% in the past six months. TSLA’s battery day might help this stock draw significant investor attention.
How does RIO stack up for the POWR Ratings?
A for Trade Grade
A for Buy & Hold Grade
A for Peer Grade
B for Industry Rank
A for Overall POWR Rating
The stock is also ranked #2 out of 33 stocks in the Industrial-Metals industry.
Albemarle Corporation (ALB)
ALB is a global engineered specialty chemicals company that develops, manufactures, and markets technologically advanced and high value-added products worldwide. The company operates in three segments – Lithium, Bromine Specialties, and Catalysts.
ALB has recently announced that it has been selected by the United States Department of Energy (DOE) as a critical partner for two lithium research projects over three years through a Battery Manufacturing Lab Call. ALB will work in conjunction with two DOE labs on the company’s approved projects. The company has a sustainable stream of cash flows and it was included in the S&P 500 Dividend Aristocrats Index at the beginning of the year.
The company reported a top-line of $764 million for its second quarter ended June 2020, which is a 14% decline year-over-year. Lithium contributed 37% to the total revenues. The segment generated $284 million, weakening $41 million year-over-year, primarily due to lower market and contract pricing. The company is operating with a gross margin of 31%. Moreover, ALB increased its quarterly dividend by 5% to $0.39.
EPS for the quarter came in $0.8, declining 45% year-over-year. However, ALB’s plants continued to operate without materially being impacted by the pandemic by investing in and growing primarily its Lithium business. The market expects EPS to grow 15% annually for the next five years.
ALB closed Friday’s trading session at $97.96, after hitting its 52-week high of $101. The stock is up more than 36% year-to-date and has gained 64.6% in the past six months. TSLA’s battery day could motivate investors to focus more on this stock.
It’s no surprise that ALB is rated a “Strong Buy” in our POWR Ratings system. It has a grade of “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” in Industry Rank. In the 68-stock Chemicals Industry, ALB is ranked #6.
Sociedad Quimica y Minera S.A. (SQM)
SQM produces and distributes specialty plant nutrients, iodine and its derivatives, lithium and its derivatives, potassium chloride and sulfate, industrial chemicals, and other products and services. It is the second-largest producer of lithium and accounts for 23% of global production. It has 7 mining operations serving 110 countries on 5 continents.
SQM has benefited from South America’s large lithium reserves and the support of the Chilean government. SQM differentiates itself by its lithium extraction methods by mining it in an ecologically and socially responsible way.
SQM sold more than 12,600 tons of lithium in the second quarter, increasing 45% from the preceding quarter. It generated a top-line of $458.5 million with a gross margin of 28%. The company generated $113 million in cash from operations. Moreover, SQM is expanding its lithium projects in Chile, which is anticipated to complete by the end of 2021.
EPS for the quarter came in $0.19, declining 30% year-over-year. However, SQM has over three times the lithium metal reserves of runner-up Australia. It is best positioned to capitalize on the great demand for lithium. Hene, the market expects next year’s EPS to grow 42% year-over-year.
SQM closed Friday’s trading session at $34.42, after hitting its 52-week high of $34.92. The stock is up more than 30% year-to-date and has gained 58% in the past six months.
According to our POWR Ratings, SQM is a “Strong Buy.” It also has an “A” in Trade Grade, Buy & Hold Grade, Peer Grade, and a “B” in Industry Rank. In the 68-stock Chemicals Industry, SQM is ranked #7.
Lithium Americas Corp. (LAC)
LAC is a Canada-based resource company that engages in the acquisition, exploration, and development of mineral properties. The company primarily explores lithium deposits in Nevada and Argentina.
LAC has recently completed the joint venture transaction of Minera Exar S.A. with Ganfeng Lithium Company Limited. Minera Exar owns 100% of the Caucharí-Olaroz lithium project currently under development in Jujuy, Argentina. The transaction with Ganfeng Lithium will strengthen LAC’s long-term partnership in Argentina to bring Caucharí-Olaroz into production.
LAC has not started to begin its commercial production yet. Its Caucharí-Olaroz Lithium Project was 47% completed at the end of the second quarter, with $427 million or 75% of the planned capital expenditures used. The company has also made significant progress concerning the Thacker Pass lithium project in Nevada. Over 15,000 kg of high-quality lithium sulfate has been produced at the process testing facility.
The company reported a negative EPS of $0.07 for the quarter, significantly improving from the quarter ago loss of $0.16 per share. TSLA has a Gigafactory right in Nevada and is posing a real opportunity to help TSLA solve the production problem.
The stock closed Friday’s trading session at $10.31, after hitting its 52-week high of $11.22. The stock is up more than 225% year-to-date and has gained 127% in the past three months.
LAC’s strong momentum is reflected in its POWR Ratings, it has a “Buy” rating with an “A” in Trade Grade, and a “B” in Buy & Hold Grade and Peer Grade. Within the Miners – Diversified industry, it’s ranked #5 out of 16 stocks.
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TSLA shares were trading at $443.36 per share on Monday afternoon, up $1.21 (+0.27%). Year-to-date, TSLA has gained 429.92%, versus a 1.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Sidharath Gupta
Sidharath’s passion for the markets and his love of words guided him to becoming a financial journalist. He began his career as an Equity Analyst, researching stocks and preparing in-depth research reports. Sidharath is currently pursuing the CFA program to deepen his knowledge of financial anlaysis and investment strategies. More...
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