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Why I won’t sell my Galaxy Resources Limited shares

On Friday the Galaxy Resources Limited (ASX: GXY) share price once again raced higher and reached an all-time high of $4.23.

This means the lithium miner’s shares have now gained over 125% over the last six months.

Should shareholders take profit?

While it may be prudent to take a bit of profit off the table if your holding in Galaxy has become an overwhelming part of your portfolio, if your portfolio remains balanced I wouldn’t be in a rush to sell.

In my opinion lithium miners such as Galaxy, Orocobre Limited (ASX: ORE), Kidman Resources Ltd (ASX: KDR), and Pilbara Minerals Ltd (ASX: PLS) have extremely bright futures ahead of them thanks to the rise in electric vehicle and renewable energy usage.

Governments around the world have plans in place to end the production and sale of internal combustion engine vehicles in the next decade or two. This is being done to combat heightened pollution levels.

China, the world’s largest car market, is arguably the driving force behind the move and is incentivising automakers. Unsurprisingly, this has led to a number of Chinese battery companies signing offtake agreements with Australian producers.

And while increasing demand generally leads to increasing supply, this isn’t exactly the case with lithium. Even if all known planned supply comes to market, it will struggle to satisfy the forecast demand.

This is expected to lead to high lithium prices for many years to come, allowing companies like Galaxy to profit greatly.

Ultimately I expect Galaxy to generate high levels of free cash flow, putting it in a position to join fellow resources stars BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) in paying a dividend.

Overall, it is because of this that I intend to hold onto my Galaxy shares for the long-term.

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Motley Fool contributor James Mickleboro owns shares of Galaxy Resources Limited. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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