Wealth Within founder and analyst Dale Gillham discuss the fall of lithium stocks and whether you should now put them on your watchlist.
The demand for electric vehicles has been outstripping supply for quite some time due to COVID lockdowns and supply chain issues. That said, increased demand is also being driven by governments legislating the move away from internal combustion engines and a desire by consumers to be environmentally friendly.
With energy prices soaring, you would think this would push demand for electric vehicles even higher, and in turn, increase demand for lithium used in the manufacture of batteries. However, while lithium fell from March to May 2022 and has started to recover, lithium stocks have continued to fall.
Looking at the top 10 lithium stocks by market capitalisation, only two are in positive territory right now and with the exception of Rio Tinto, all have fallen by more than 20% this month.
Three have also fallen by around 40% in June while another three have fallen more than 30%. So, if lithium has stopped falling, why are these stocks nosediving and does this spell opportunity for investors?
Interestingly, the significant rise and subsequent fall in the price of lithium stocks isn’t totally due to increased demand for the commodity but rather investor greed and fear.
Following the COVID crash in early 2020, many new investors jumped into the market and by late 2020 the price of lithium started to rise and the more it rose, the more investors jumped in.
However, as prices started to fall in 2022, investors became fearful, pushing prices down even further. In the short term, I expect further falls as more investors exit these stocks. Right now, I would look at putting a number of these stocks on your watchlist, as they will turn in the not-too-distant future.
About the author
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au