Commodities stocks have been on fire!
The Invasion of Ukraine has sent oil, wheat, nickel, and other commodities soaring!
There is one stock that so far has been overlooked and looks primed!
There is one sector that stands to benefit from the significant increase of electric vehicles that are about to hit the roads.
Lithium is a key component required in the batteries that power electric cars. Increasing demand is starting to outstrip supply, and the price of lithium is at historical highs. Not only this, but as inflation worries hit tech stocks, money has rotated into the commodities sector.
Worldwide money printing has led to inflation i.e. higher prices for raw materials, and who benefits from this? The miners of these raw materials!
One of the few companies with exposure to American lithium is Lithium Americas Corp (LAC). This is one of my favorite trade ideas right now and could continue much higher.
Fundamentals
Lithium Americas Corp. operates as a resource company in the United States. The company explores for lithium deposits. It owns interests in the Cauchari-Olaroz Project located in Jujuy province of Argentina, and Thacker Pass project located in northwestern Nevada.
According to Bloomberg NEF, global electric car sales are estimated to have reached 5.6 million vehicles in 2021 from 3.1 million in 2020. Further demand growth in 2022 will mean a lithium deficit this year as the use of the material outstrips production and depletes stockpiles, according to a December report from S&P Global.
I expect this trend to continue as more and more people choose to purchase electric cars over combustion engines. Commodities cycles can run for years and years, so this could be just the beginning for miners like LAC.
Technicals
LAC is currently around 25% off the highs of $41.56 made back in November, currently trading at around $30.26. It is up 5 days in a row after finding support at the $24 area.
I am not one to chase stocks that have moved so much so fast. Instead, I would like to see LAC consolidate and form a base before I take a position. I would be interested in the stock at the $27.50 area. That would be a nice 15% pullback from these levels and coincides with the 50-day moving average as well as the middle of the Keltner band.
This would be a very attractive level to get in for a second leg higher above $30 and even a longer-term breakout above the highs of $41.56. I love the fundamentals in LAC here, so am watching this stock closely!
Bottom Line
As inflation and interest rate fears decimate tech stocks, there are other sectors of the economy that may benefit. Higher prices for raw materials, whilst being a negative for the consumer and companies who use these materials, are great for the miners of these materials.
Lithium is a key component required in the batteries that power electric cars. As legacy automakers produce more and more electric cars, and motorists change their habits and buy more of these vehicles, the demand for batteries and their components increases.
Increasing demand for lithium is starting to outstrip supply, and the price of lithium is near historical highs. One company that can continue to benefit from this is Lithium Americas Corp (LAC). I am watching this stock closely as I love the fundamentals here. As soon as the technicals line up and I am ready to pull the trigger, I will be sure to let subscribers know!
