A Safer Way to Invest in Surging Demand for Electric Vehicles

One of the biggest stories in the news for the past year or two has been the rising popularity of electric vehicles. This has caused the stock prices of some companies in the sector, such as Tesla, to soar to dizzying heights. However, there is another way for people that believe in the growth of electric cars to invest in the sector, and it's a way that doesn't involve buying highly followed and high-priced stocks in unprofitable companies.

That way is to invest in those companies that sell the raw materials needed to make electric cars. One of these materials is lithium, which is a vital component of the batteries that go into electric vehicles. The biggest producer of lithium in the world is a Chilean company, Sociedad Quimica y Minera (NYSE: SQM  ) , and it will be the focus of this article.

About Sociedad Quimica y Minera
Sociedad Quimica y Minera is a Chilean chemical company that is one of the world's leading producers of specialty plant nutrients, iodine, and lithium. Because of this, the company is not a pure play on the growth of lithium demand. In fact, lithium is not even the company's top product as its agricultural commodities, such as potash, make up the lion's share of its business. However, the company is still the largest producer of lithium in the world, accounting for nearly 31% of the world's supply of the element. This is why the company could prove to be a good way to invest in growing demand for electric cars.

Falling stock price due to potash market difficulties
Shares of Sociedad Quimica y Minera have not had particularly strong performance over the past year or so.

The reason for this poor performance was the collapse of the Belarusian cartel. This caused potash prices to plunge all over the world. This results in lower margins for those companies that produce potash, one of SQM's main products. However, as discussed in the previous paragraph, SQM has plenty of other products besides potash; this stock price decline could present a perfect opportunity for those who want to jump in and bet on the proliferation of electric cars and handheld gadgets.

Lithium demand is up substantially and should continue growing rapidly
Worldwide demand for lithium has been growing at a very rapid pace as can be clearly seen by looking at prices for the element. Prices for lithium have tripled since 2000, making this a $1 billion per year market . The reason why we know that the market is growing is because it is demand for the element that is pushing up prices. The supply of lithium has certainly not decreased.

We could see demand for lithium grow astronomically if demand for electric and hybrid cars takes off. This is because of the amount of lithium needed to make the powerful lithium-ion batteries that power these vehicles. According to Navigant Research, the proliferation of electric cars will cause the market for lithium-ion batteries to grow more than four-fold by 2023; that would grow a $6 billion industry into a $26 billion industry. Transparency Market Research predicts even higher growth, with the battery industry growing to $33.11 billion in size by 2019.

It is quite obvious then that the lithium-ion battery market is a rapidly growing one. The demand for lithium should grow proportionally, and Sociedad Quimica y Minera should benefit from this growth.

Relatively cheap stock
The stock price of Sociedad Quimica y Minera does not appear to take this growth potential into account at present levels. At the time of writing, the company trades at a price/earnings ratio of 17.72. This is a fairly low multiple in the current market given its growth prospects. The company is also not particularly overburdened with debt, carrying a debt-to-equity ratio of 0.74. All in all, the company could be a pretty good way to bet on the growing popularity of electric and hybrid vehicles.

Are you ready to profit from this $14.4 trillion revolution?
Let's face it, every investor wants to get in on revolutionary ideas before they hit it big. Like buying PC-maker Dell in the late 1980s, before the consumer computing boom. Or purchasing stock in e-commerce pioneer Amazon.com in the late 1990s, when it was nothing more than an upstart online bookstore. The problem is, most investors don't understand the key to investing in hyper-growth markets. The real trick is to find a small-cap "pure-play" and then watch as it grows in EXPLOSIVE lockstep with its industry. Our expert team of equity analysts has identified one stock that's poised to produce rocket-ship returns with the next $14.4 TRILLION industry. Click here to get the full story in this eye-opening report.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2915612, ~/Articles/ArticleHandler.aspx, 10/21/2014 12:58:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement