We recently compiled a list of the 7 Best Battery Stocks to Buy According to Analysts. In this article, we will look at where Sigma Lithium Corporation (NASDAQ:SGML) ranks among the best battery stocks to buy according to analysts.
Electric Mobility: A Key Driver of the Battery Industry
The move to electric mobility is a major driver of the battery market globally. Rising gasoline costs and environmental concerns are driving a shift toward electric vehicles. A survey by Carwow found that 44% of drivers changed their driving preferences owing to rising fuel costs. As such, about 14 million new electric automobiles were registered in 2023, showcasing increased demand for EVs, as reported by the International Energy Agency. In the same year, annual electric car sales increased by 3.5 million, representing a 35% uptick year-over-year (YoY). The report also noted that battery electric cars made up 70% of the total electric car inventory in 2023.
Apart from consumer demand, the governments are supporting initiatives to drive growth in electric vehicles and battery markets. In April 2024, British International Investment (BII), the UK’s development finance institution (DFI) agreed to an investment of $19 million in “CHARGE ZONE” of India, which is a rapidly growing EV charging network. As reported in our previous article on the most promising EV stocks to buy, the U.S. Department of Energy announced $1.7 billion in funding to transform 11 struggling auto manufacturing plants into EV production hubs and related products. Thus, governments are clearly striving for a rapid EV transition.
Sector Performance
Despite a promising future, the battery market, especially lithium, is undergoing a tough patch. The oversupply of critical materials including lithium, nickel, and cobalt has shrunk their prices, posing additional challenges for mining and battery companies. As China dominates global production with more integrated production, its utilization of only 40% of its maximum cell output in 2023 resulted in massive over-supply. Therefore, this posed problems for the United States and European countries which strived to localize their supply chains through partnerships.
Therefore, the broader battery market has had a relatively weak performance in 2024, largely driven by A decline in the lithium stocks. Lithium prices saw a downtick of over 80% in 2023, and they reached $12,900 per ton in June 2024 – the lowest in a 35-month period. This is attributed to the oversupply of lithium and the resulting decline in its demand. Furthermore, this is due to a revision in the EV sales growth forecast, particularly as the Chinese market matures and Western demand takes a downward turn. As a result, share prices have also seen a significant decline.
However, the EV revolution continues as BNP Paribas eyes a 23% global sales growth in 2024. Although pure battery EVs’ demand is stagnating, plug-in hybrid EVs are experiencing substantial growth, particularly in China, where hybrid sales grew 90% YoY in April and May 2024, compared to only 10% for battery EVs, according to BNP.
Global Battery Market
While the short-term outlook of the battery market is somewhat uncertain, the long-term outlook is much more promising. The global demand for lithium-ion batteries is expected to surge, driven by electrification and clean energy. The battery demand is projected to grow from 700 GWh in 2022 to 4.7 TWh by 2030.
With the market standing at over $100 billion mark in 2022, it is set to grow at a CAGR of 15.8% by 2030, as reported by Forbes. Apart from consumer demand, regulations like the EU’s internal combustion ban and the U.S. Inflation Reduction Act will also contribute to this growth. Additionally, the emergence of new technologies in the automotive, space, and telecommunication industries that are reliant on solid-state batteries further fuels the growth of batteries.
United States Battery Market
Driven by increased EV sales, the U.S. battery market was valued at $29.44 billion in 2022 and is projected to reach $85.7 billion by 2030. The market is expected to rise at a CAGR of 14.23% during the projected period. This expansion is being spurred by government initiatives that promote renewable energy and innovation. In June 2021, the US announced $200 million in funding for electric vehicles and batteries. Furthermore, Lyten raised $200 million in equity funding to manufacture lightweight batteries and create a manufacturing facility in California, thereby increasing the country’s battery production capacity.
Thus, there’s certainly a promising future for the battery market, and that’s why it is essential we shed light on the Best Battery Stocks to capitalize on its future potential.
Methodology
To curate the list of the 7 Best Battery Stocks to Buy According to Analysts, we screened for companies involved in the battery industry, focusing on areas relevant to battery production and their applications. From that group, we picked stocks with a projected upside potential of over 15% based on analyst price targets. The stocks are ranked according to their upside potential, as of September 22.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 920 funds as of Q2 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Sigma Lithium Corporation (NASDAQ:SGML)
Upside Potential: 128.12%
Sigma Lithium Corporation (NASDAQ:SGML) explores lithium deposits in Brazil. It holds a 100% interest in key properties across 185 kilometers in Minas Gerais. It supplies directly to the global lithium-ion battery market, crucial for electric vehicles.
The company showed strong financial performance during the second quarter of 2024, with revenue of $45.9 million. This was driven by sales of nearly 53,000 tons of lithium concentrate at a price of approximately $894 per ton. This reflected Sigma’s effective cost management and operational excellence.
Moreover, the operating cash margin reached 54% and adjusted EBITDA margins were recorded at 30%. Sigma Lithium Corporation (NASDAQ:SGML) reported cash operating costs of $420 per ton, reflecting a decline of 22-24% from previous levels. As a result, it ended the quarter with a cash balance of $108 million, driven by $46 million in net revenue.
Capital expenditure during the quarter was $9 million, primarily driven by Phase 2 expansion and brownfield investments. Moreover, Sigma Lithium Corporation (NASDAQ:SGML) also achieved operational reliability with consistent delivery of 22,000 tons of lithium concentrate every 30-35 days. This has allowed SGML to improve credit terms and charge a price premium over its competitors.
The company is focused on incorporating sustainability into its operations through its Greentech plant. The plant’s dry stacking process reduces tailings and water usage, contributing to the company’s confidence in reaching 60,000 tons of sales in Q3 2024.
However, it has faced operational challenges due to the consistent decline in lithium prices over the past year. As a result, the share price has fallen by more than 70% on a YTD basis. Although Sigma Lithium Corporation (NASDAQ:SGML) has faced profitability challenges in the past, it became profitable last year, indicating its commitment to growth.
Nevertheless, the situation has improved with the reduction in lithium supply, which further increases growth prospects. As a result, SGML’s share price has increased by 15% in the past month. Moreover, 20 hedge funds have collectively invested $8.9 million in the company (as of Q2 2024) as per Insider Monkey’s database. Therefore, analysts have predicted an upside potential of 128.12% in the share price.
Overall SGML ranks 3rd on our list of the best battery stocks to buy according to analysts. While we believe in the potential of SGML as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SGML but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.