Big 3 In Lithium Hitting Highs

By Matthew McCall | July 06, 2011 AAA

As the world implements new green energy policies to battle rising fossil fuel costs as well as global warming, there will be a number of winners in the stock market. One trend will be more electric cars on the road, especially in emerging markets such as China.
According to studies, China and Europe are more receptive to the electric car movement, as Americans continue to second-guess the viability of the green machines. With everyone from General Motors (NYSE:GM) to Toyota (NYSE:TM) pushing fuel-efficient vehicles, it is difficult to pick the winner in regard to investing.

TUTORIAL: Exchange-Traded Fund (ETF) Investing

Lithium
This is why I turn to the batteries that will be going into the vehicles; and even more specifically, the lithium within the batteries. I have written about lithium stocks in the past, and over the last week the Big Three of lithium have rallied to new highs, so now is an appropriate time to revisit the sector.

Chemical & Mining Company of Chile (NYSE:SQM) is the world's largest lithium producer, but it is mainly known as a fertilizer company to most investors. Along with lithium, the company has three more business segments: specialty plant nutrition, iodine and industrial chemicals. During its last earnings report, the company saw net income increase by 45.6% from a year earlier as revenue rose by 23.6%. The stock currently trades with a forward P/E ratio of 25.7 and pays a 0.7% dividend. Technically, the stock is trading near an all-time high and needs to pull back to the low $60s before entering.

Rockwood Holdings (NYSE:ROC) is a diversified chemical company that is the world's leading manufacturer of lithium-based compounds through its Chemetall division. The company announced last month that it will increase lithium product prices by 20% to keep up with increased costs. This will also allow the company to boost production now that prices are back to 2008 levels. The stock is also at an all-time high and trades with a very reasonable forward P/E ratio of 14.1. A buy zone would be the mid $50s.

Not to be outdone is FMC Corp. (NYSE:FMC), which is similar to ROC as a diversified chemical company that is one of the Big Three in lithium production through its FMC Lithium division. The company also announced a 20% increase in lithium prices last month, allowing for high margins to cover increased expenses. Fundamentally, the stock trades with a forward P/E ratio of 13.7 and pays a dividend of 0.7%. Technically it joins the other two at an all-time high.

Alternative Option
Investors wanting exposure not only to the lithium suppliers, but also the battery makers, can opt for the Global X Lithium ETF (NYSE:LIT). The ETF is dramatically lagging the Big Three due to its 50% exposure to the battery makers. Lithium stocks are outperforming as the battery companies continue to struggle with sales and expenses. For a pure play lithium investment, the best choice would be to concentrate on the Big Three. (For related reading, see The Future Of Green Technology Investing.)

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