Can this red-hot sector continue to soar while markets break records?

The stock market had a strange day last Friday as the pockets in the market performed quite well while others got quite big hits. More extreme measures to control the COVID-19 pandemic abroad have begun to make US investors nervous, as shutdowns could exacerbate supply chain problems and result in headwinds to global economic expansion. That’s a big part of why Dow Jones Industrial Average (DJINDICES: ^ DJI) and S&P 500 (SNPINDEX: ^ GSPC) was down last Friday, even then Nasdaq Composite (NASDAQINDEX: ^ IXIC) hit another record that closed well above 16,000.

Index

Daily percentage change

Daily point change

Dow

(0.75%)

(269)

S&P 500

(0.14%)

(7)

Nasdaq

+0.40%

+64

Data source: Yahoo! Finance.

Almost all investors know that the space for electric vehicles has received a lot of attention from the market society, which has sent the shares of electric car manufacturers significantly higher. The trend has also benefited lithium stocks enormously, with key players in the area showing sharp gains on Friday. However, given that lithium production is largely a commodity business, some investors question whether these stocks deserve to participate in the same bull market as the electric car manufacturers themselves. Below we will look at how lithium stocks have behaved lately and what the future may bring.

Salt lake bed with a mountain range behind.

Image Source: Getty Images.

Another great day on the lithium front

Major lithium producers had another strong day. Lithium Americas (NYSE: LAC) was the biggest winner, rising 13% to a record high. The company received positive comments from stock analysts at JP Morgan, which increases their price target on the lithium stock by $ 11 per share. share to $ 39. Analysts like that Lithium Americas has been aggressive in pursuing strategic acquisitions to become a major player in the fast-growing area.

But other lithium stocks also rose amid strong lithium prices and a generally favorable environment. Albemarle (NYSE: ALB) had risen about 2.5% on Friday, while Piemonte Lithium (NASDAQ: PLL) rose 4 pct. Livent (NYSE: LTHM) achieved a more modest 1 per cent. Even though Standard Lithium (NEW: SLI), which had experienced significant declines on Thursday after shortseller researchers criticized the company, returned with a 16% increase on Friday.

The bull and the bear box for lithium

Basically, investors in the lithium area expect a continued increase in the demand for lithium as part of the battery systems for electric vehicles. With production numbers on the rise, not just among industrial giants Tesla (NASDAQ: TSLA) but also for the many future Chinese electric car manufacturers, the need for batteries that can power these vehicles is exploding higher.

The big question is whether battery technology will continue to rely on lithium indefinitely. At least so far, the answer to that question seems to be yes, with even some of the more innovative players in battery technology remaining focused on the favorable chemical qualities of lithium. E.g, QuantumScape (NYSE: QS) hopes to scale up the production of a battery alternative that it believes is superior to current conventional EV batteries, but even QuantumScape’s design still uses lithium – albeit in a different way.

Either way, one thing investors need to keep in mind is that while EV technology providers are at the forefront of innovation, lithium producers will compete fiercely to find the best resources to meet demand. It can put pressure on everyone in the industry, and therefore it is not a matter of course that all lithium stocks will participate fully in the EV revolution in the coming years.

This article represents the opinion of the author, who may disagree with the “official” recommendation position for a Motley Fool premium advisory service. We are motley! Questioning an investment dissertation – even one of our own – helps us all think critically about investing and make decisions that help us become wiser, happier and richer.

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