Diageo

The Diageo (LSE:DGE) share price has climbed 10% from its 52-week lows. But investors who think the opportunity to buy the stock has passed must have short memories. 

The chance to buy Diageo shares at £25 must have seemed unrealistic a year ago when the stock was trading at £33. Yet here we are.

Challenges in various regions have caused sales to fall for the first time since 2020. But the company’s key advantages – the strength of its brands and the scale of its distribution – are still very much intact.

A dominant position in the US, for example, has been an issue recently as weak consumer spending has weighed on volumes. Over the long term though, I think it could well be an advantage.

Alcohol in the US is distributed by wholesalers rather than directly to retailers. This leads to higher margins for producers like Diageo, which helps with profitability.

Macroeconomic weaknesses and foreign currency fluctuations are a genuine risk for a business with Diageo’s reach. But with the stock still some way from its highs, it’s still on my buying list.

Albemarle

Lithium prices have crashed over the last couple of years, taking mining stocks with it. As a result, Albemarle (NYSE:ALB) shares trade at their lowest level since October 2020.

The company’s key competitive advantage – the quality of its assets, which allow it to produce lithium at a lower cost than its competitors – is still intact though. At least, it is for the time being. 

Albemarle’s Chilean operations have the lowest costs of any lithium mine in the world. However, the government’s expressed an intention to own a majority stake in such projects in future.

If this happens, the company could be forced to trade partial ownership of its key asset for the right to renew its lease. That would be very bad for shareholders.

Albemarle’s lease has just under 20 years left to run though, so this might be a problem for the future. Until then, the business should benefit from growing demand driven by the rise of electric vehicles.

Despite the volatile lithium price, the company’s a dividend aristocrat. And I think right now could be an opportunity to buy a great business for the long term at a discounted price.

Stocks to buy

Diageo and Albemarle are very different businesses. But they have a couple of things in common that make them stand out as attractive stocks to consider buying in September. 

The first is they both have durable advantages that are impossible for competitors to replicate. This makes them attractive for the long term. 

The second is that both are trading at unusually low prices. That’s why I think there might be a good opportunity in September for my Stocks and Shares ISA.

The post 2 dividend shares on my radar in September appeared first on The Motley Fool UK.

But are lithium stocks at a potential buying level, or is it too soon?

Why would I invest?

The International Energy Agency (IEA) predicts that the demand for lithium will increase by 400% by 2030, as more and more people switch to EVs. This is a huge growth opportunity for lithium companies, but it also means that there will be a lot of competition.

Investors also need to consider the supply of lithium. The world’s largest lithium reserves are located in Australia, Chile, and Argentina. However, these reserves are not evenly distributed. For example, Australia has a lot of lithium reserves, but it doesn’t have a lot of lithium production capacity. This means that Australian lithium companies may export their lithium to other countries, driving up the cost.

Most importantly, investors in lithium stocks need to understand that the market is still relatively new, bringing a lot of uncertainty. For example, it’s possible that demand for lithium could slow down if there is a breakthrough in battery technology that negates the need for large amounts of lithium.

Which companies are well positioned?

With all of that said, there are a few lithium stocks that I think are worth considering. Two of my favourites are Albemarle and SQM.

Albemarle is the world’s largest lithium producer. The company has a strong track record of growth and a diversified portfolio of lithium assets. Albemarle is also well-positioned to benefit from the growth of the EV market. The company has a joint venture with Tesla, and it is also supplying lithium to other major automakers, such as BMW and Ford.

SQM is another leading lithium producer. The company has a strong presence in Chile, which is home to some of the world’s largest lithium reserves. SQM is also a major producer of iodine, which is used in a variety of industries, including electronics and pharmaceuticals.

Both Albemarle and SQM are interesting for those who are looking to get exposure to the potential growth of lithium stocks. However, there are some key differences between the two companies. Albemarle is a more established company with a larger market capitalisation. SQM is a smaller company with a higher growth potential.

Discounted cash flow calculations suggest the shares in both companies may be as much as 75% undervalued. The price-to-earnings (P/E) ratio of 6.6 times for Albemarle, and 5.5 times for SQM, is significantly below the average of the sector at 14.2 times.

Profit margins for both are also growing, with Albemarle at 41%, and SQM at 35%. Despite the next few years showing low or declining growth in revenue for both, this growth in margin suggests that the sector is moving in the right direction.

Am I buying lithium stocks?

Lithium stocks are clearly going to play a significant role in the growth of the EV sector. However, there are some risks associated with investing in lithium stocks at this stage, and the coming years look uncertain.

For my portfolio, I believe that resilient companies able to grow steadily in the sector will be well positioned, and intend to invest in both companies in the coming months.

The post Is now the time to be buying lithium stocks? appeared first on The Motley Fool UK.