Lithium ‘Battery’ Stocks Can Still Spike From Here

Lithium ‘Battery’ Stocks Can Still Spike From Here

Whatever you think of John Maynard Keynes as an economist, he sure was right about one thing: The market can stay irrational a lot longer than you can stay solvent.

Tesla is proof of this every day. No matter how bad the news coming out of this company is, the share price stays high.

The latest hiccup is the company’s failure to hit its production target in the third quarter just gone.

It wasn’t even close…it built 260 Model 3 cars, when it was supposed to build 1,500.

Is it investor confidence in the electrification of cars or Elon Musk himself?

I’m not sure.

The bears and the critics keep attacking Tesla… From what I see, they’re mostly right…but I’m sure most of them have lost money regardless.

But there’s a good guide here: Don’t try and short a stock until it’s in a clear downtrend.

You can get smashed otherwise.

The thing that’s always bothered me about Tesla is what happens when it stops being ‘the’ electric car company and becomes one of many? Where’s the competitive advantage, besides the brand?

Regardless, the market couldn’t care less about what I think, and Tesla shares are up about 50% this year.

And all the battery stocks out here in Australia are still rumbling…

More electric cars coming to the world

And no wonder. The news just keeps coming in to say more electric models will be built.

General Motors is now saying it intends to sell 20 electric vehicles by 2023.

British inventor James Dyson, of Dyson vacuum cleaner fame, wants to build an electric car as well.

That reminds me — one of the first things I wrote about when we launched the new Daily Reckoning was the opportunity still in the resource sector from ‘battery’ commodities like lithium and cobalt.

Here’s what I wrote on 3 July:

I can’t say exactly when these battery metal stocks are going to take off again, but we should be watching for any hint of it from now. They could really run hard again. Be ready for when they do.’

We got a taste of this just now…

Still big potential here

Galaxy Resources Ltd [ASX:GXY] closed at $2.90 yesterday — up 80% since that day in July.

That’s not to say I’m that smart. I didn’t buy it, though it was in the back of my mind too, in a vague sort of way.

That’s another learning experience: Don’t delay when you sense an opportunity. Mr Market doesn’t hang around waiting for you to make your mind up — or me!

One of the reasons Galaxy’s up is a recent report in The Australian Financial Review, which says Galaxy has inked a deal with Panasonic.

The company denies the deal, though it admits it’s in ‘discussion’ with Panasonic and other buyers, including major car makers.

This kind of thing could keep running across this sector. There’s more demand brewing for lithium than available supply.

You can’t just turn on a mine in an instant. It takes huge resources in human and financial capital to get these things off the ground.

Any company with proven and available supply is in a pretty good position right now.

So keep watching this sector.

Joe Lowry is one guy I follow for some credible commentary on lithium.

He keeps repeating the same thing: Car markets are going to have to sign some cheques to finance lithium juniors — or face shortages next decade.

That means there’s still plenty of potential for lithium juniors to trend strongly if some big, recognisable companies start getting involved.

Imagine the market reaction if Tesla or VW announces a deal with some lithium junior.

You can make good money in those kind of spikes. It’s something to watch for.

Of course, there’s no gurantee these juniors will be Australian, operating in Australia, or even on the ASX.

Chile is a major lithium producer, and I’ve seen projects in the US state of Nevada, plus Canada and Mexico too.

But the main point about all this is that there’s good money to be made if you’re prepared to look outside the ASX 200.

The main index is still grinding sideways, as it basically has all year. It keeps threatening to break out…but keeps coming back.

If you’re looking to make some money, you need to go to the smaller end of the market where things are really moving.

My view is that the stock market is getting stronger, not weaker. I’m certainly building up the buy list for Small Cap Alpha,and it’s gone pretty well so far.

In fact, the hard part is choosing between the opportunities.

That’s a good problem to have.


Callum Newman
Editor, The Daily Reckoning Australia