These EV battery companies have ample headroom for revenue and cash flow growth through the decade
Some of the best battery stocks to buy have a long way to go in terms of upside potential and value creation. The electric vehicle (EV) industry faces some near-term challenges in the form of macroeconomic headwinds and geopolitical tensions. Supply chain concerns have also impacted sentiments. This has translated into a correction for some of the best battery stocks.
However, considering their long-term growth potential, this is the best time to accumulate quality names. To put things into perspective, the International Energy Agency predicts that installed battery capacity worldwide will increase tenfold to sixteenfold by 2030.
Another estimate suggests the global demand for Li-ion batteries will increase “from about 700 gigawatt hours (GWh) in 2022 to around 4.7 terawatt hours (TWh) by 2030.” Clearly, battery companies are positioned for massive expansion in revenue and cash flows. This column talks about three of the best battery stocks that can create immense value.
Albemarle (NYSE:ALB) has been in a deep correction mode that is in sync with the decline in lithium prices. At a forward price-to-earnings ratio of 5.4, ALB stock looks deeply undervalued and seems poised for a comeback. The stock also provides a dividend yield of 1.38% and I believe that healthy dividend growth is likely once lithium prices trend higher.
Specific to Albemarle, it’s worth noting the company guided for operating cash flow of $600 million to $800 million for 2023. With depressed lithium prices, the company has also undertaken cost-cutting initiatives coupled with the rephasing of growth investments. These measures are likely to unlock more than $750 million in cash flows in the near term. The key point is that Albemarle is likely to navigate challenging times with a strong balance sheet.
Albemarle had announced plans to boost lithium conversion capacity to 600 kilo tonnes per annum (ktpa) by 2027. This implied tripling the miner’s capacity from 2022 levels. Capacity expansion will likely be less aggressive today. However, strong fundamentals will provide funding for growth when sentiment for lithium reverses.
Panasonic Holdings (PCRFY)
Panasonic Holdings (OTCMKTS:PCRFY) is among the best battery stocks to buy and hold. At a forward price-to-earnings ratio of 7.3, PCRFY stock looks undervalued and I expect a breakout on the upside. Further, the stock offers an attractive dividend yield of 2.38%.
An important point to note is that there is intense competition even in the EV batteries business. However, innovation is the reason to like Panasonic Holdings. As an example, the company is working on increasing volumetric energy density by 25% by 2030. Higher density coupled with higher productivity will ensure lighter batteries for EVs.
At the same time, Panasonic is working on solid-state batteries for drones and factory robots by 2029. With automation, there will be a big demand for more factory robots in the coming years. The same holds true for drones, which have a wide application.
I therefore believe that Panasonic will grow at the healthy pace backed by expansion and innovation. The company is targeting a quadrupling of battery capacity to 200 GWh by 2031.
Solid Power (SLDP)
Let’s also look at a penny stock that’s worth buying for potential multi-bagger returns. Solid Power (NASDAQ:SLDP) is working towards the commercialization of solid-state batteries. It is worth noting that after a deep correction last year, SLDP stock has trended higher by 22% year-to-date. With positive business developments, I expect the uptrend to continue.
One reason to like Solid Power is that the company has strong automotive partners including Ford (NYSE:F) and BMW (OTCMKTS:BMWYY). In December 2022, Solid Power licensed its cell design and technology to BMW for parallel research and development. Further, in Q3 2023, the company shipped its first A-sample EV cells to BMW for automotive qualification. This is an important step towards commercialization.
In other recent news, Solid Power deepened its partnership with SK On. The latter will be using Solid Power’s cell technology for research and development and to produce batteries on a new solid-state line in Korea. Solid Power will also be an electrolyte supplier to SK On under this agreement.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.