With lithium being a key component in batteries, the industry has seen a demand surge in recent years amid the growing popularity of electric vehicles (EV). However, geopolitical issues, supply chain disruptions, and fears of a looming recession pose risks to the sector.
In such a scenario, fundamentally weak stocks Sigma Lithium Corporation (SGML), Lithium Americas Corp. (LAC), and Piedmont Lithium Inc. (PLL) could be best avoided.
Amid efforts to accelerate the country’s clean energy transition, the Biden administration’s new tailpipe emissions limits set a new target requiring as much as 67% of all new vehicles sold in the U.S. by 2032 to be all-electric. While this could bring in exponential demand for the lithium sector, its supply may struggle to keep pace, as seen in the past.
With lithium’s global supply chain currently dominated by a few countries, including Australia, Chile, China, and Argentina, any disruption to the supply chain could lead to shortages and price spikes, making it a potential risk to the industry.
Therefore, amid an uncertain macroeconomic climate, investors could look to sell fundamentally weak stocks SGML, LAC, and PLL.
Sigma Lithium Corporation (SGML)
Headquartered in São Paulo, Brazil, SGML engages in the exploration and development of lithium deposits in Brazil. It holds 100% interest in the Grota do Cirilo, Genipapo, Santa Clara, and São José properties.
In terms of trailing-12-month Return on Common Equity, SGML’s negative 50.87% compares to the industry average of 11.61%. Its trailing-12-month cash from operations of negative $12.15 million compares to the industry average of $385.60 million. Likewise, its negative 31.02% trailing-12-month Return on Total Capital compares to the 6.89% industry average.
For the fiscal third quarter ended September 30, 2022, SGML’s net loss for the period widened by 20.4% year-over-year to C$13.13 million ($9.81 million). Its net loss and comprehensive loss for the period widened by 15.2% year-over-year to C$13.19 million ($9.85 million). Additionally, its net loss per share widened by 8.3% from the prior-year quarter to C$0.13.
SGML’s EPS for the quarter ended September 30, 2022, is expected to remain negative. It has a bleak earnings surprise history, missing the consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 14.8% to close the last trading session at $38.55.
SGML’s weak fundamentals are reflected in its POWR Ratings. The stock has an overall rating of F, translating to a Strong Sell in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
Within the Chemicals industry, the stock is ranked #78 out of 83 stocks. It has an F grade for Quality and a D for Value, Momentum, and Stability.
To see the additional ratings of SGML for Growth and Sentiment, click here.
Lithium Americas Corp. (LAC)
Headquartered in Vancouver, Canada, LAC operates as a resource company in the United States and Argentina. The company explores for lithium deposits.
In terms of trailing-12-month Return on Common Equity, LAC’s negative 14.17% compares to the industry average of 11.61%. Its trailing-12-month cash from operations of negative $65.22 million compares to the industry average of $385.60 million. Likewise, its negative 5.44% trailing-12-month Return on Total Capital compares to the 6.89% industry average.
LAC’s expenses for the fourth quarter ended December 31, 2023, widened 312.9% year-over-year to $31.80 million. The company’s cash used in operating activities widened 22.6% year-over-year to $65.20 million, compared to $53.20 million from fiscal 2021.
Its net loss widened 143.1% year-over-year to $93.60 million. Additionally, its loss per share widened 118.8% year-over-year to $0.70.
LAC’s EPS for the quarter ended March 31, 2023, is expected to remain negative. Over the past year, the stock has fallen 34.8% to close the last trading session at $20.14.
LAC’s POWR Ratings reflect its grim outlook. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. It is ranked #31 out of 41 stocks in the Miners - Diversified industry. It has a D grade for Value, Momentum, Stability, and Quality.
We have also given LAC grades for Growth and Sentiment. Get all LAC ratings here.
Piedmont Lithium Inc. (PLL)
PLL, a development stage company, engages in the exploration and development of resource projects in the United States. The company primarily holds a 100% interest in the Carolina Lithium Project.
In terms of trailing-12-month Return on Common Equity, PLL’s negative 6.01% compares to the industry average of 11.61%. Its trailing-12-month cash from operations of negative $26.45 million compares to the industry average of $385.60 million. Likewise, its negative 9.01% trailing-12-month Return on Total Capital compares to the 6.89% industry average.
PLL’s loss from operations for the third quarter ended September 30, 2022, narrowed 11.1% year-over-year to $9.59 million. Its net cash used in operating activities for the nine months ended in the same period widened marginally year-over-year to $22.04 million.
PLL’s EPS for the quarter ended March 31, 2023, is expected to remain negative. Over the past year, the stock has fallen 25.2% to close the last trading session at $54.05.
PLL’s bleak prospects are reflected in its POWR Ratings. The stock has an overall rating of D, equating to a Sell in our proprietary rating system. It is ranked #32 in the same industry. Moreover, it has an F grade for Sentiment and a D for Value, Momentum, Stability, and Quality.
Click here to access the additional rating of PLL for Growth.
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SGML shares were trading at $39.21 per share on Friday afternoon, up $0.66 (+1.71%). Year-to-date, SGML has gained 38.94%, versus a 7.73% rise in the benchmark S&P 500 index during the same period.
About the Author: Malaika Alphonsus
Malaika's passion for writing and interest in financial markets led her to pursue a career in investment research. With a degree in Economics and Psychology, she intends to assist investors in making informed investment decisions.
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