Lithium stocks could be set to soar! Here’s 1 I like

Lithium stocks are rising in prominence. This Fool delves deeper into this penny stock to see if it could be a good addition to his holdings.

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Lithium stocks could be set to rise in prominence in the coming years. Government initiatives to cut carbon emissions have led to a rise in demand for electric vehicles.

And lithium is a vital component in EV car batteries. There are a number of stocks related to the metal that could be primed to benefit. One I am considering for my holdings is Atlantic Lithium (LSE:ALL).

West Africa-focused

Atlantic Lithium is an Australian-based mining business that concentrates on assets in West Africa. It has a flagship mine in Ghana that is set to become Africa’s first lithium producing asset.

So what’s happening with the Atlantic share price currently? Well, shares are trading for 37p as I write. At this time last year, they were trading for 23p, which is a 60% rise over a 12-month period.

Lithium stocks have risks

Many of Atlantic’s assets are currently exploratory only. This means there is no guarantee that they will successfully mine lithium to sell. If Atlantic’s mines don’t bear fruit, I could see its performance and investor sentiment dwindle.

Another risk is that competition in the lithium mining sector is intensifying. Competition is natural but the issue I have with Atlantic is the fact there are better equipped businesses with bigger budgets and better infrastructure vying to dominate the market. One name that springs to mind is Rio Tinto, one of the largest mining businesses in the world.

Why I like Atlantic and my verdict

The general market for lithium is a positive point, in my opinion. Demand for it should only increase in the coming years with lots of different applications available. The most lucrative application should be for EV batteries. Demand for EVs has increased and there is a consensus that EV vehicles will outsell conventional cars in the coming years. In fact, many governments and manufacturers will only sell EVs in the future.

So what about Atlantic Lithium itself? Well, recent updates have been positive. In past months, Atlantic has invested significantly to upgrade the infrastructure at its flagship Ewooya mine. Furthermore, it is also increasing drilling capacity, which I see as a sign of its confidence in the mine producing lithium.

At current levels, the shares look dirt-cheap to me. I could be entering the potentially lucrative lithium stocks market at a rock-bottom price. My investment strategy has always been to buy and hold for the long term. If I added a small number of shares and the stock did not perform, I would not have lost much of my hard-earned cash.

Overall, I would add a small number of shares of Atlantic Lithium to my holdings. I believe it is a great entry point to access lithium stocks for my holdings. If I’m buying shares for 37p per share, I’m not worried about losing lots of money on the shares. However, based on the current lithium market, rising demand, and Atlantic’s confidence in its projects, I expect it to perform in the longer term and provide me with returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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