The ASX lithium share sector has had a great run this year. But it will be a hard act for ASX lithium shares to follow and do half as well in 2023 in my opinion. ASX lithium shares could even lose some of the ground they've gained.
But, we can't know and predict for sure what share prices are going to do on any given day, month or even year.
Hence, If I had to choose two ASX lithium shares in the sector to invest in right now, I'd go with these two:
Pilbara Minerals Ltd (ASX: PLS)
I think that Pilbara Minerals is the leading ASX lithium share. Its share price has certainly risen to reflect that. The company has seen a gain of 35% so far in 2022 and is up 108% since 30 June.
The lithium price could drop back from here. But, it could stabilise, or even keep going higher. Pilbara Minerals achieving a price of US$5,000 per dry metric tonne (dmt) through a digital auction may have been unrealistic a year ago, yet its latest sale of 5,000 dmt was for US$7,805 per dmt.
The business is a cash machine right now. At 30 September 2022, it had built a pile of US$1.375 billion of cash and it's planning to start paying dividends soon.
I'm a big fan of the company's plans to be more involved with the lithium supply chain, not just extracting the raw materials from the ground. This should help the ASX lithium share achieve stronger profit margins.
If the lithium price remains elevated, I think that Pilbara Minerals could outperform the S&P/ASX 200 Index's (ASX: XJO) return in 2023.
Mineral Resources Limited (ASX: MIN)
Mineral Resources is involved in iron ore, lithium and mining services.
It could be useful for the business to have that diversification in this environment of uncertainty. With China seemingly looking to ease COVID restrictions a little, as well as providing support to the troubled real estate sector, things are looking up for iron ore.
The ASX lithium share is already profitable and it's investing in increasing production, owning its lithium hydroxide conversion capabilities, decarbonising, automating road trains and so on.
I think that things are looking up in the short-term and the long-term for the business, particularly if it can capitalise on the strong lithium prices.
The promising look may turn into good dividends for shareholders. According to Macquarie, it could pay a grossed-up dividend yield of 15.9% in FY24. Dividends are not guaranteed, but this level of payment would certainly help future investment returns
According to Macquarie, Mineral Resources shares are valued at 4 times FY24's estimated earnings.
