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Investing in Lithium: The Energy Giants Part 2

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According to Frost & Sullivan, the global market for lithium-ion batteries is expected to double to $22.5 billion in 2016 from $11.7 billion in 2012.

 

Consumer goods and automobile sectors are driving the demand.

The share of the automobile sector in the lithium-ion battery market is expected to grow to 25% in 2016 from 14% in 2012, per the data from Frost & Sullivan. This represents a Compounded Annual Growth Rate (CAGR) of 37%. With the increasing use of lithium-ion batteries in consumer electronic products as well as efforts to promote the use of electric cars by many governments to curb pollution, the demand for these batteries is expected to rise

 

2 Lithium Stocks to Buy Now, Zachs.com

 

Among the elements of the universe, lithium is a real lightweight — the third lightest of them all with an atomic weight of 3, right behind helium at 2 and hydrogen at 1.

But as one of the most conductive metals in existence, lithium is a true heavyweight in the field of energy storage and battery design.

In hot demand as the chief ingredient in batteries where power and long life are critical — such as in electric cars and aerial drones — lithium is rapidly becoming one of the hottest commodities to invest in, driving multiple market segments from mining to manufacturing to advanced electronics.

Unfortunately, that hot commodity may be too hot to handle. It has been known to spontaneously combust, causing its batteries to fully discharge all of their stored energy in a flash — literally. We’ve all seen those YouTube videos of Tesla Motors’ electric car going up in flames when its lithium battery was punctured by road debris.

Will the explosion in lithium production and uses continue to make it one of the most promising commodities to invest in? Or will the literal explosion of its batteries cause its prospects to go up in flames?

Lithium Packs a Powerful Punch

Two important characteristics of lithium make it extremely sought after as the chief material in batteries:

  • High reactivity: Like all alkali metals, lithium atoms give up electrons very easily, making them highly efficient producers of electric current.
  • Light weight: As the third-lightest element in the universe and the lightest of all the solids, manufacturers can pack a tremendous amount of lithium into a small space while still keeping the overall weight of the package ultra light.

 

Combine these two characteristics, and you get an awful lot of electric power packed into a small space that is extremely light — perfect for powering everything from cell phones to tablets to cars to drones, which demand power and long battery life without adding a lot of weight.

Characteristics that make it temperamental to deal with:

  • Flammable and explosive: When exposed to air, oxygen causes lithium to ignite and burn, while nitrogen binds to lithium atoms producing lithium nitride. If there is any water present — even air moisture — the lithium nitride hydrolyzes, releasing ammonia gas (which is caustic and corrosive) and hydrogen gas (which is explosive).

Thus, a simple puncture of a lithium battery’s protective casing can cause lithium to explode as it comes into contact with air and moisture, producing toxic and corrosive fumes and fires that are difficult to extinguish, requiring dry powders to put out. Quite the negative publicity, which has been readily brought to the public’s attention thanks to viral videos of burning cars.

Yet manufacturers are already finding ways of improving even this newest of technologies.

Keeping an Eye on Ions

While lithium batteries are pretty much the best one-time-use power cells on the market, it’s the reusable, rechargeable lithium-ion batteries that are most used in consumer devices from phones to music players to tablets and now even autos. In 2013 alone, over 5 billion lithium-ion batteries were sold to consumers, with demand soaring by the year.

Where disposable batteries use metallic lithium as the negative anode and manganese dioxide as the positive cathode, rechargeable ion batteries replace the manganese dioxide at the positive cathode with lithium cobalt oxide. While this increases energy density, making the batteries longer lasting, it also increases the risks of overheating, fire, and explosion.

To make ion batteries a little safer, manufacturers have replaced the lithium cobalt oxide with either lithium iron phosphate, lithium manganese oxide (one oxygen atom as opposed to dioxide’s two atoms), or lithium nickel manganese cobalt oxide. This latter one (NMC) is the favored configuration for electric cars.

The need for NMC batteries is so huge that Tesla Motors announced last month that it will build its own lithium battery factory — the world’s largest. The company is gearing up to begin production of its next generation electric car in three years’ time, and it doesn’t want any battery shortages to interfere with production.

Investment Opportunities

As the ever-increasing production of portable consumer devices, electric cars, and even electric military equipment will dramatically increase the demand for lithium-ion batteries, lithium may well provide investors with an investment opportunity of a lifetime.

As noted in the graph below, lithium production has already tripled this century, from 200,000 tons in the year 2000 to over 600,000 tons last year.

Source: wikimedia.org

Luckily for manufacturers, mining lithium is relatively inexpensive, especially at brines in high mountain plateaus, where lithium coats the surface of the ground after the sun has evaporated the water from the deposits.

Because miners can simply scrape lithium off the surface of the ground, brine excavation is just about the only lithium extraction game in town, with actual hard rock mining of lithium priced out of the market by the brines.

The highest concentrations of lithium are found in the high altitude regions of the Andes Mountains in Chile, Argentina, and Bolivia, as well as in the mountains of Tibet and China. Mid-range concentrations of lithium can also be found in the mountain ranges of Nevada, California, Colorado, and Utah.

Future electric energy material providers:

  • Sociedad Quimica y Minera (NYSE: SQM): This $8.7 billion mid-cap based in Chile is the largest producer of lithium in the world in the largest lithium-producing country in the world. While lithium production is only 10% of the company’s output, the company mainly engages in the production and distribution of specialty plant nutrients, iodine and its derivatives, potassium chloride and potassium sulfate, industrial chemicals, and other commodity fertilizers. So you get some diversification. The stock jumped some 30% from $26 to $34 on Tesla’s announcement of its proposed new car model and battery factory.
  • FMC Lithium, a division of FMC Corp. (NYSE: FMC): This $10.4 billion American large-cap is the world’s second-largest producer of lithium, with a 23% market share. The company’s main focus is in agricultural, consumer, and industrial markets for crop protection chemicals, including insecticides, herbicides, and fungicides. Its stock also rallied on Tesla’s news, rising some 9% from $72 to over $78.
  • Rockwood (NYSE: ROC): This $5.9 billion American mid-cap recently purchased a 49% share in Talison Lithium, granting it access to the largest known lithium reserves in the world. The company develops, manufactures, and markets specialty chemicals including lithium and rubber/thermoplastic components to the auto industry. Its stock has risen some 17% over the past month from $68 to $80 on Tesla’s news, as well as on improved company positioning within its markets.
  • Global X Lithium ETF (NYSE: LIT): Of course, you also have a lithium ETF if you want to spread your investments across multiple holdings. Trading since 2010, LIT holds all three of the above listed lithium producers as its top three holdings — FMC weighted at 19.31%, ROC at 19.15%, and SQM at 7.5%. LIT’s shares have risen 16% from $12 to $14 over the past month.

Lithium’s Powerful Future

Although there are already some experiments being conducted on even newer battery technologies using magnesium-ion cells instead of lithium-ion, still more powerful batteries than magnesium cells are sticking with lithium — including lithium-sulphur and lithium-oxygen combinations.

Given its light weight, ease of chemical reactivity, and inexpensive extraction and production, you can bet on lithium powering cell phones, laptops, tablets, cars, drones, and all the other new gizmos the next generation of techies will invent.

In fact, lithium presents us with a rather longer-term investment opportunity compared to most technologies. By investing in materials that are used across multiple technologies rather than investing in an individual device or brand, we avoid the short-term crashes that come from a company or product that has suddenly been made obsolete by a competitor.

While electronic consumer products and companies come and go, lithium will remain as the product that will power them all for decades to come. This featherweight packs

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Social Media Stocks Slip As Trump Issues Executive Order

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Social Media Stocks Slip As Trump Issues Executive Order

Social media stocks slipped yesterday after President Trump signed an executive order granting the government broader authority to crack down on social media companies. Twitter fell 4.45%, Facebook dipped 1.61% and Google’s parent company Alphabet dropped 0.08%. Twitter took the biggest hit because Trump said if the company doesn’t operate honorably, he hinted he would consider shutting the company down.

Trump says social media companies have gained “unchecked power” and have taken on the roles of editors and publishers of the content on their websites. His executive order would remove their “liability shield” if they engage in censorship.

What is Section 230?

Section 230 allows tech companies to moderate user-generated content on their site without becoming legally liable for it as a publisher typically would.

The law allows companies to engage in “good Samaritan” moderation of “objectionable” material. This, then, comes without the companies receiving a publisher or speaker treatment. Section 230 allows platforms like Twitter, Facebook and Google’s YouTube to take down terrorist content. It also allows them to track and take down harassing messages while still enjoying other legal protections.

What the law doesn’t allow, and what Trump says the platforms are doing, pertains to selectively moderating what messages users see to silence conservative voices.

“They’re doing things incorrectly, they have points of view,” Trump said at the White House. “My executive order calls for new regulations under Section 230 of the Communications Decency Act to make it that social media companies that engage in censoring or any political conduct will not be able to keep their liability shield. That’s a big deal,” he also stated.

Trump’s Order

Trump said the order would also prevent taxpayer dollars from going to any company that engages in what Trump referred to as deceptiveness. This is in addition to limiting these protections for companies that acted with bias.

Trump’s executive order comes just days after Twitter added a fact-checking feature. The social media site added the new feature alongside two of the President’s tweets about mail-in ballots and fraud. After Twitter added the fact-checking features, Trump then accused the company of engaging in “political activism.”

He also tweeted, “So ridiculous to see Twitter trying to make the case that Mail-In Ballots are not subject to FRAUD. How stupid, there are examples, & cases, all over the place. Our election process will become badly tainted & a laughingstock all over the World. Tell that to your hater @yoyoel.”

“Big Tech is doing everything in their very considerable power to CENSOR in advance of the 2020 Election,” the president also said Wednesday night — on Twitter. “If that happens, we no longer have our freedom. I will never let it happen! They tried hard in 2016, and lost. Now they are going absolutely CRAZY. Stay Tuned!!!” he then added.

Reactions

Facebook CEO Mark Zuckerberg said that his company is taking a different approach to moderating content on his social media platform.

“I just believe strongly that Facebook shouldn’t be the arbiter of truth of everything that people say online. Private companies probably shouldn’t be, especially these platform companies, shouldn’t be in the position of doing that.”

The interest in updating Section 230 to remove the liability shield for publishers isn’t just a goal for Republicans. It actually has bipartisan support.

This past January, Democratic nominee Joe Biden proposed revoking Section 230 completely. “The idea that it’s a tech company is that Section 230 should be revoked, immediately should be revoked, number one. For Zuckerberg and other platforms. It should be revoked because it is not merely an internet company. It is propagating falsehoods they know to be false.” Biden also never responded to follow-up questions about this statement.

Even former Democratic candidate also Bernie Sanders supported the idea, adding, “Tech giants and online platforms should not be shielded from responsibility when they knowingly allow content on their platforms that promotes and facilitates violence.”

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Ackman’s Hot Streak Continues, Dumps Berkshire, Says ‘We Can Be More Nimble’

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Ackman’s Hot Streak Continues, Dumps Berkshire, Says ‘We Can Be More Nimble’

Bill Ackman’s hot streak continues. This comes after he announced that his Pershing Square hedge fund has returned an average of 25% this year. It also trounces the average hedge fund return of -7%. Additionally, this reveals that it sold its $1 billion stake in Warren Buffett’s Berkshire Hathaway. The fund first invested in Berkshire less than a year ago and only weeks took a larger stake in the conglomerate.

Completely exiting the Berkshire position surprised many on Wall Street, as Ackman has long admired Buffett as a mentor. He recently said that Buffett had built Berkshire “to withstand a global economic shock like this one.”

It appears that Ackman, like many, may have felt frustrated by the lack of activity from Berkshire during the recent market downswing. Berkshire’s cash balance has ballooned to $137 billion. Many, including Ackman, had likely expected a portion of that cash to be used to scoop up bargains during the late-February selloff. The said selloff took markets down nearly 30%.

Instead, Berkshire stood pat, and that appears to have been enough for Ackman to pull the plug on his investment. While discussing the exit, Ackman said that due to Pershing’s smaller size compared to Berkshire, “we can be much more nimble… and so our view was generally we should take advantage of that nimbleness, preserve some extra liquidity in the event that prices get more attractive again.”

Pershing Square’s success over the last two years had thrust Ackman back into the spotlight. This, perhaps, turned the chapter on a period where he became more famous for his misses than his home runs.

He was invested in Valeant Pharmaceuticals as it collapsed. He also famously squabbled on live TV with fellow billionaire Carl Icahn over Herbalife. Then, he gave a nearly 3-hour-long presentation explaining why he thought the company runs as a pyramid scheme. He finally exited his $1 billion short position at a loss.

Ackman’s current hot streak started last year, when Pershing Square returned 58.1%. This is its best annual return since the hedge fund was founded in 2004. After years of letting others make the firm’s investment decisions, Ackman took back the reins in 2018 with a back-to-basics strategy he learned from Buffett.

He returned the fund to a strategy that invests in simple, predictable, cash flow positive companies. He said, “It’s very hard to lose money by buying great businesses if you pay a fair price. For a while there, we forgot that our main job was to make money, so we woke up, and now we’re back in the money making business.”

Making money is exactly what Ackman did earlier this year. He did so with “the single best trade of all-time,” as what many calls it. He correctly predicted that the coronavirus would wreak havoc on our economy. Because of this, Ackman made a $27 million bet that netted his firm a $2.6 billion profit in less than two months as the markets crashed.

Now, his war chest is full again. It appears that Ackman is ready to buy should asset prices come down again.

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Biden Is Latest Dem to Support Ridiculous Free Housing Proposal

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Biden Is Latest Dem to Support Ridiculous Free Housing Proposal

Presidential candidate Joe Biden is the latest Democrat to throw their support behind the ridiculous idea that housing should be free

During an appearance yesterday, Biden said he agrees with “forgiving” both mortgage and rent payments. He says this as the country struggles with the coronavirus pandemic and 38 million Americans are without a job.

“There should be rent forgiveness and there should be mortgage forgiveness now in the middle of this crisis. Not paid later, forgiveness. It’s critically important to people who are in the lower-income strata.” said Biden

Tara Raghuveer, housing campaign director at People’s Action, a political network devoted to grassroots organizing, aired her opinion. She said, “The tenant is the most vulnerable person in the economy right now.”

She added, “The alternative to not canceling the rent is complete bottoming out of the market. And tens of millions of people literally never financially recovering from this moment.”

Calls for Housing Relief

Biden’s call for rent and mortgage relief echoes efforts by Minnesota Rep. Ilhan Omar. Omar introduced legislation that would bar landlords and lenders from collecting monthly payments. It would also impose late fees “through the duration of the pandemic.”

Under Omar’s plan, renters and mortgage borrowers who skip payments wouldn’t need to pay back anything once the rent and mortgage forgiveness policy ended. And any lender or landlord who violated the plan would face penalties.

Correctly, housing industry experts point out that allowing renters to skip payments also needs to consider the consequences of the landlords not being able to pay their own mortgages on the property.

“If multifamily landlords, particularly the small mom and pop landlords who own just maybe one to four units can’t make their mortgage payments and can’t stay in business, those are affordable units that are going to be lost to the private market,” said Flora Arabo, the national senior director of state and local policy at Enterprise Community Partners.

“Rent forgiveness without rental subsidies could be pretty catastrophic for tenants,” Arabo said.

Omar’s plan addresses these concerns, supporters say. It does so because it creates a fund for landlords and lenders so that they could recoup any losses.

Not surprisingly, Raghuveer’s organization, People’s Action, worked with Omar in drafting the bill. The organization threw in more stipulations for landlords to collect those funds. These include providing information on their revenues, refraining from discrimination based on the source of income, and other tenant protections.

Biden’s Impact

Biden’s support for the rent and mortgage forgiveness plans doesn’t really mean much. However, the biggest problem with these free housing proposals is that they demonize landlords. They let the tenants immediately skip payments, but force the landlords to deal with bureaucracy and red tape to receive relief funds.

According to the Census Bureau, individual investors own nearly 75% of our nation’s rental units, not massive corporations. Those mom and pop landlords likely aren’t any more sophisticated than their tenants. They would also find themselves in the same dire financial situation should they lose the ability to collect rent.

Bob Pinnegar, president and CEO of the National Apartment Association, said in a recent interview, “Rent cancellation proposals do not adequately address the problem and fail to recognize that many property owners are in the same dire situation as their residents — substantial loss of income amid ongoing financial obligations.”

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