3 ASX lithium stocks this fund manager is holding despite sector pullback

Lithium prices have surged amid strong battery demand from the EV market.

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A man wearing a suit holds his arms aloft with a smile on his face is attached to a large lithium battery with green charging symbols on it.

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Key points

Leading ASX lithium stocks have easily outpaced the benchmark returns for longer-term shareholders.

Here’s what we mean.

If you’d bought shares in Allkem Ltd (ASX: AKE) in June 2017, you’d be sitting on a gain of 192%. Over that same five years, the IGO Ltd (ASX: IGO) share price is up 222%, while ASX lithium stock Mineral Resources Ltd (ASX: MIN) has soared 344%.

For some context, the All Ordinaries Index (ASX: XAO) is up 17% in five years.

A turbulent month

More recently, though, ASX lithium shares’ strong gains have reversed. This comes as investors mull reports that an abundance of investment in exploration and production facilities could see the lithium price slide in the medium term.

Those concerns have seen the Allkem share price tumble 28% over the past month. Over the same period, the Mineral Resources share price fell 21% while IGO lost 17%.

The All Ordinaries is down 8% over the month.

But the recent pullback in ASX lithium stocks hasn’t dissuaded the portfolio manager of the Quest Long Short Australian Equities Fund, Richard Dixon.

All 3 ASX lithium stocks are generating significant cash flows

Addressing the three ASX lithium stocks we looked at above, Dixon said (as quoted by The Australian Financial Review):

We have held Allkem for many years and also hold IGO and Mineral Resources. All three are in production and are generating significant cash flows as spot prices have surged due to strong EV (electric vehicle) demand.

Allkem is the only lithium pure play of the trio, but it is a diversified producer with major expansion plans that can be easily funded from existing cash flow.

Dixon is more cautious when it comes to earlier-stage ASX lithium stocks. He said:

We are avoiding lithium developers at this stage of the cycle. The recent correction has re-established value as the producers are only pricing in less than a third of current spot prices for the next few years, despite the positive supply-demand outlook.

Motley Fool contributor Bernd Struben 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.

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