Is it too late to buy ASX lithium shares?

An expert gives his thoughts on the future of demand for the battery ingredient, and names one ASX lithium share he's buying at the moment.

| More on:
a woman smiles as she checks her phone in one hand with a takeaway coffee in the other as she charges her electric vehicle at a charging station.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Some investors have done pretty well out of ASX lithium shares in recent years as the element saw rising demand from battery and electric car makers.

However, those stocks have fallen somewhat in recent weeks as lithium prices have topped out.

So the big question from those who haven't yet jumped on the bandwagon is: Is it too late? Is the current dip a buying opportunity, or has the peak passed?

Shaw and Partners portfolio manager James Gerrish gave his thoughts recently on whether it's still a good idea to buy into these companies.

Lithium can't be substituted easily 

Regardless of the short-term dip, lithium demand is here to stay, according to Gerrish.

"Lithium ties into the electrification thematic that is taking over the globe," he said in a Market Matters Q&A.

"The reason for the hype is [that] lithium has unique characteristics that are difficult to replicate. It is a light metal but is able to store large amounts of energy and is an excellent conductor of electricity."

Gerrish added that while other battery minerals can be substituted with other ingredients, lithium demand is "relatively immune to these risks".

"Demand for lithium has grown at [approximately] 20% compound annual growth rates through 2017 to 2022 and we think that will continue, while lithium deposits that are technically and economically viable to exploit are rare," he said.

"This all paints a positive backdrop for the sector, and particularly the higher quality hard rock producers in Australia — the question comes down to timing."

Which is the ASX share to buy to jump on the lithium bandwagon?

So if you were to become a new ASX lithium share investor right now, which is the stock Gerrish would buy?

"We recently bought IGO Ltd (ASX: IGO), which is highly correlated to fellow battery metal stocks on the ASX," he said.

"We like IGO given it also has a very solid nickel business that has been [expanded] through the sensible purchase of Western Areas (WSA)."

The IGO share price is down around 20% since its last peak on 4 April.

Gerrish's team still likes the other two major producers, Pilbara Minerals Ltd (ASX: PLS) and Allkem Ltd (ASX: AKE), but they're "a crowded play" as with many other green-themed stocks at the moment.

"For that reason we have left room to average our IGO position into weakness," he said.

"We are also contemplating adding Pilbara or buying Allkem in the Emerging Companies Portfolio using the same philosophy."

For comparison, Pilbara shares have plunged 35% since 4 April, while the Allkem stock price has also headed south 14% over that period.

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Materials Shares

A female worker in a hard hat smiles in an oil field.
Materials Shares

Should you buy Rio Tinto shares following its quarterly update?

Let's see what analysts are saying about the mining giant.

Read more »

A male lion with a large mane sits atop a rocky mountain outcrop surveying the view, representing the outlook for the Liontown share price in FY23
Materials Shares

Where will Liontown shares be in 3 years?

Can this stock recharge investor excitement?

Read more »

A man checks his phone next to an electric vehicle charging station with his electric vehicle parked in the charging bay.
Materials Shares

2 of the best ASX 200 lithium stocks to buy now

Analysts speak very highly about these lithium miners.

Read more »

A woman jumps for joy with a rocket drawn on the wall behind her.
Materials Shares

Why this ASX battery materials stock could rocket 60%

Bell Potter is tipping this stock to have a bright future.

Read more »

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.
Materials Shares

Why today is a good day to own Rio Tinto shares

This miner's shareholders have reason to smile this morning.

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

BHP share price charges higher following Q3 update

How did the Big Australian perform during the last quarter?

Read more »

a mine worker holds his phone in one hand and a tablet in the other as he stands in front of heavy machinery at a mine site.
Materials Shares

Is Core Lithium stock a good long-term investment?

Is this lithium dog a buy-the-dip opportunity today?

Read more »

Man in mining hat with fists raised and eyes closed looking happy and excited about the Newcrest share price
Materials Shares

Guess which ASX small-cap mining stock is rocketing 32% today

This mining stock is being given a major cash injection from the government.

Read more »