Will Lithium Power Up in 2012?

With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.

Today, let's take a look at the lithium industry. With its potential for use in batteries for everything from mobile devices to electric cars, lithium plays an increasingly important role in the global economy. But higher demand often means rising prices for commodities, creating a potential opportunity to invest in the companies that produce lithium. Below, I'll take a closer look at what people expect from the industry in 2012, as well as some ways to play the trend.

Forecasts on lithium stocks

Target Price, Sociedad Quimica y Minera (NYSE: SQM  ) : $64, 16% above current price

Target Price, FMC: $104, 15% above current price

Target Price, A123 Systems (Nasdaq: AONE  ) : $4, 72% above current price

Target Price, Exide Technologies (Nasdaq: XIDE  ) : $5, 57% above current price

How will lithium do this year?
2011 wasn't a terribly strong year for lithium-related stocks. The Global X Lithium ETF (NYSE: LIT  ) fell 37% as fears of a global economic slowdown weighed on the industry. But this year, analysts expect lithium prices to jump 20%.

Obviously, the biggest winners from higher lithium prices are the companies that produce it. Sociedad Quimica y Minera is the world's largest lithium producer, with huge reserves in Chile. With growth in sales and volume of around 25%, any price increase should fall straight to the company's bottom line. Chemical companies FMC and Rockwood Holdings (NYSE: ROC  ) should also benefit from strength in lithium prices. Increasingly, the companies are boosting their investment in the sector to take advantage of the profit opportunity there.

On the applied side of the business, battery-makers Exide and A123 have had their stocks lose a lot of ground in the past year. Higher lithium prices can actually hurt the battery-makers that use lithium as a raw material unless they can pass through those higher costs to their buyers. In addition, controversy over a rival's batteries apparently causing fires at high-impact speeds in electric vehicles raises questions for the battery industry's potential for automobiles.

Despite those worries, though, the need for power storage should give a big tailwind to the lithium industry in 2012. With individual companies having their own issues, buying the lithium ETF may give you the best-diversified play on the space that you can get right now.

Lithium has a lot of potential, but we think that a stock in a completely different industry has even better prospects in 2012 and beyond. Read the Motley Fool's latest special report to discover the name of our pick for the top stock for 2012. It's free but only for a limited time, so read all about it now.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned. The Motley Fool owns shares of Rockwood Holdings. Motley Fool newsletter services have recommended buying shares of Sociedad Quimica y Minera. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.

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  • Report this Comment On January 18, 2012, at 12:59 PM, aparso wrote:

    I like Xide batteries because I can buy a 8 volt battery from them when I need one. I can not find these batteries otherwise. They are fair priced and have a warranty...Good product..

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