In 2022, lithium stocks, in general, outperformed the market. Of course, that's not saying much since last year was the S&P 500 index's worst year since 2008.

More importantly, the long-term growth prospects for select lithium stocks still look bright. Demand for lithium to make batteries for electric vehicles (EVs) has been soaring and is projected to continue to be strong for many years. Supply has been tight, sending prices rocketing. The existing players have plans to further ramp up production and new companies are entering the space, but it generally takes a long time for significant new sources of lithium to come on line.

While a stock's past performance isn't necessarily indicative of its future performance, it is often reflective of a company's competitive advantages and the quality of its top management. So it can be helpful to consider past performance when you're making stock investing decisions.

With that said, below is how the three largest lithium companies that are listed on a major U.S. stock exchange performed in 2022, and over the past three- and 10-year periods.

A salt flat showing brine beneath the surface and a mountain in the background.

Image source: Getty Image.

Lithium stocks ranked by 2022 performance

Company

Market Cap

Forward P/E

Wall Street's Projected 5-Year Annualized EPS Growth

2022 Return

3-Year Return

10-Year Return

Sociedad Quimica y Minera (SQM 3.44%) $26.5 billion 6.8 14.7% 71.6% 267% 151%
Albemarle (ALB 3.59%) $31.0 billion 9.2 84.7% (6.6%) 236% 394%
Livent (LTHM) $4.6 billion 13.8 1% (18.5%) 180% N/A

S&P 500

N/A N/A N/A (18.1%) 28% 226%

Data sources: Yahoo! Finance and YCharts. Data to Jan. 24, 2023, except for 2022 performance. P/E = price-to-earnings ratio. EPS = earnings per share. Boldfaced returns have beaten the S&P 500. 

SQM: 2022's stock champ, but higher risk than shares of the big U.S.-based lithium companies

Sociedad Quimica y Minera, or SQM, is not a lithium pure play, but its lithium business is its largest segment, by far. In the third quarter of 2022, this segment accounted for about 79% and 83% of the company's total revenue and consolidated gross profit, respectively. Its four other businesses are specialty plant nutrition, iodine, potassium, and industrial chemicals.

SQM stock had a great 2022, trouncing the S&P 500 and shares of Albemarle and Livent. However, over the 10-year period, its stock has significantly underperformed the S&P 500 and Albemarle stock. (Livent stock -- a spinoff from FMC -- has only been trading since late 2018.)

SQM's recent business performance has been powerful, which has led to a sizable increase in its dividend because the company has a variable dividend policy that's based on its net income. Currently, its dividend is yielding about 8.1%.

But the saying that "there's no such thing as a free lunch" applies here. SQM is headquartered in Chile, which gives it a higher risk profile from currency and political standpoints than Albemarle and Livent, both of which are based in the United States. So only investors comfortable with higher risk and volatility should consider buying shares.

Albemarle: The long-term lithium stock champ

In 2022, Albemarle stock returned negative 6.6%, which was good enough to outperform the S&P 500 by 11.5 percentage points. As of mid-November, shares had been up 40% for the year before significantly pulling back. Market dynamics, rather than the company's business performance -- which has been very robust -- was the main driver of the pullback.

Like SQM, Albemarle isn't a pure play on lithium, though its lithium business is its largest. In the third quarter of 2022, this segment accounted for about 72% of the company's total revenue and 93% of its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). Its other two businesses are bromine and catalysts.

Albemarle pays a quarterly cash dividend, which is currently yielding about 0.6% annually. While this is a modest dividend, it will likely continue to steadily increase. Last year marked the company's 28th consecutive year of raising its dividend. 

Livent: Has lagged the other big players in increasing production capacity

Livent is a pure play on lithium, which could be a positive or a negative depending upon how well the lithium market is performing relative to the other markets in which Albemarle and SQM operate.  

Livent's business has performed wonderfully recently. However, it generally hasn't performed as well as Albemarle's and SQM's lithium businesses. A main reason is that those two companies have been benefiting from the combination of soaring realized lithium prices and significant increases in sales volumes. Livent's revenue has gotten a big boost from higher realized prices, but its sales volumes haven't increased notably. However, this should change starting this year, as the company has several capacity expansion projects in the works.

Livent doesn't pay a dividend, but it does have a notable advantage over Albemarle and SQM: It owns what's currently its sole source of lithium -- the Salar del Hombre Muerto salt pan in Argentina, where it "mines" lithium from underground brine. SQM and Albemarle have more than one source of lithium, but neither owns their largest source, the Salar de Atacama salt flat in Chile. Both companies pay royalties to a Chilean government agency for their use of this resource to mine lithium from brine.

What's the best lithium stock among these three to buy in 2023?

Albemarle stock is the best bet for most investors, in my opinion. The company has more sources of lithium than SQM and Livent, it has some diversity, it pays a small dividend, and its stock valuation is very attractive. Wall Street expects the company's earnings per share (EPS) to grow at an average annual rate of 85%, and shares are trading at just 9.2 times its projected EPS for the next 12 months. 

That said, there is something to like about the other stocks, too. SQM investors have the potential to snag a fat dividend and also get some diversity. And Livent investors get a company that has better control over its destiny in some respects because it owns what's currently its sole source of lithium. 

So some investors might want to divvy up the amount they plan to invest in the lithium space into two or three portions and buy shares in two or all three of these companies.