Why this top broker says lithium is “our top short idea”

It’s no secret, the demand for lithium is soaring. The Financial Times is reporting that in light of the recent car emission scandals, governments in countries such as France are encouraging car makers to go electric and the French government wants to banish petrol and diesel cars by 2030.

Credit Suisse estimate that sales of rechargeable batteries (which contain lithium) should treble by 2025 to $59bn and grow at a compounding rate of 14% between 2017 and 2022.

If demand is high and expected to keep growing, then why is, Vivienne Lloyd, a metals analyst at top broker Macquarie quoted in the FT as saying lithium is “our top short idea”?

The answer is excess supply. The demand for lithium has not gone unnoticed and Australian lithium miners such as Galaxy Resources Limited (ASX: GXY)Mineral Resources Limited (ASX: MIN)Pilbara Minerals Ltd (ASX: PLS) and Altura Mining Ltd (ASX: AJM) have contributed to the global supply.

So how should investors react? Here is what I would do:

  • Understand where we are in the cycle. Mining stocks are cyclical and go in and out of favour based on global supply and demand.
  • Determine my investment time horizon. In my view the trend towards electric cars is a significant long term trend and so perhaps lithium stocks may fall in the short term but ultimately I think they could benefit in the long run. There is a risk that investors could buy precisely when lithium stocks look overpriced and unattractive, sell when there is a market correction and then not get back in when the long-term upward trend continues. No one knows with certainty how the market will react and that’s why it’s important to understand why you would buy a stock in the first place so that when inevitable fluctuations occur, you do not react out of fear.

The Disruptors: 3 Revolutionary Aussie Companies to Back for 2018

We’re living in one of the most exciting times in investing history. Innovation and a booming culture of entrepreneurship are constantly creating new companies with the potential to make forward-thinking investors very rich. Now more than ever, one small, smart investment could make a huge difference to your wealth.

That’s why at The Motley Fool we’ve been scrutinizing the ASX to uncover the kinds of companies that we believe could turn into the next Cochlear or REA Group.

We’ve found three exciting companies that we believe re poised to perform in the new year. Click here to uncover these ideas!

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya.

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.

The 5 mining stocks we’re recommending in 2019…

For decades, Australian mining companies have minted money for individual investors like you and me. But if you believe the pundits and talking heads on TV, those days are long gone. Finito! Behind us forever…

We say nothing could be further from the truth. To earn the really massive returns, you’ve got to fish where others aren’t fishing—and the mining sector could be primed for a resurgence. That’s why top Motley Fool analysts just revealed their exciting new research on 5 ASX miners they believe could help you profit in 2019 and beyond…


The best way we see to play the global zinc shortage… Our #1 favourite large-cap miner (hint: it’s not BHP)… one early-stage gold miner we think could hit the motherlode… Plus two more surprising companies you probably haven’t heard of yet!

For free access to our brand-new research, simply click here or the link below. But be warned, this research is available free for a limited time only, and we reserve the right to withdraw it at any time.

Click here for your FREE report!