Growth stocks are listed firms that are expected to outperform in the future, and thus, grow quicker than their peers. Often this term is applied to tech stocks, but they’re not the only growth stocks around. Today I’m looking at Chilean mining giant, Sociedad Química y Minera de Chile S.A. (NYSE:SQM), often referred to as SQM.
What does it do?
SQM is a Chile-based speciality chemicals company, focusing on the mining and production of iodine, lithium, and other industrial chemicals. However, it is best known as one of the world’s biggest lithium stocks.
Lithium is widely used in the production of batteries that are installed in electric vehicles and used in other technologies. With demand for rechargeable batteries soaring in recent years, so have lithium prices. The price of the silvery-white alkali metal has gone from around $10,000 per tonne less than a year ago to nearly $60,000 today.
A $60k reason to buy SQM
Lithium prices have soared, but few people expected them to remain at this level. In the summer, when prices were at $70,000 per tonne, Goldman Sachs forecast that lithium prices would fall to $16,000 per tonne in the second half of the year and further in 2023.
However, that forecast has not materialised. In fact, prices have stabilised around $60,000. Last week, SQM said it expects prices for the battery material to stay high into 2023 as some analysts feared an end to China’s two-year buying frenzy would cause prices to collapse.
Average lithium prices rose to record levels during the last quarter to more than $56,000 per tonne, the company said. The company forecasts global lithium demand to grow during the year by at least 40%, partially due to rising electric vehicles sales in China — sales of EVs are expected to exceed 6.5m units, double last year’s amount.
Surging share price
SQM shares are up 45% over the past 12 months, with lithium prices at core of this. The surge in the price of carbonate and its impact on SQM’s gross profit is impossible to ignore.
In the last quarter, the miner posted a net profit of $1.1bn. Quarterly revenue surged more than four times year-on-year to $2.95bn, with lithium revenues growing more than 12 times.
But can the share price growth be sustained? I think so.
Demand for lithium is proving a lot more robust than originally thought. And, in hindsight, it is logical. While the global economic slowdown might be bad for car sales, EV sales are still expected to grow. After all, the movement towards EV adoption is critical in reducing global carbon emissions.
Naturally, a deeper than expected global slowdown or more sustained Chinese lockdowns clearly won’t be positive for lithium demand. However, that’s not the scenario we’re looking at now.
As such, I’m finally looking to add SQM to my portfolio. And while many growth stocks don’t provide dividend payments, SQM offers an attractive 4.6% yield.