Tesla's Gigafactory and Recent Mergers and Aquisitions Boosting Lithium Sector To New Highs

By: Jeb Handwerger | Fri, Jul 25, 2014
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Summary

  1. Demand is soaring for lithium as its use is growing rapidly in smartphones, tablets and electric vehicles.
  2. Lithium Sector on verge of a major 2014 52 Week High Breakout as Tesla announcement to build Gigafactory sparks major interest in sector.
  3. Major M&A activity is taking place with the recent $6 billion merger between Albemarle and Rockwood. This may be just the beginning.
  4. One of the largest chemical deals in history. Demand is growing fast for the electrification of the automobile.

Demand is soaring for lithium, which is used in rechargeable batteries for smartphones, iPads and electric vehicles. Weeks ago I wrote in this article that "Despite the lithium sector being in a correction for six weeks, attention should be paid to this dynamic sector which may be just on the verge of breaking out higher." The lithium ETF (NYSE:LIT) was trading below $13 when that article was written testing the 200 day moving average.

LIT Global X Lithium ETF NYSE
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Now the lithium ETF is poised to make a powerful breakout at new 52 week highs at $14. A game changing event occurred last week when Albemarle (NYSE:ALB) paid over $6.2 billion to buy the world's largest publicly traded lithium producer Rockwood Holdings (NYSE:ROC).

This is one of the largest chemical deals and the lithium industries biggest M&A transaction in history. Demand has doubled in the past decade as lithium ion battery use has grown in mobile technology. Growth in the lithium sector has been far outpacing other sectors. Some experts believe demand could even grow faster over the next decade especially as electric vehicles gain market share.

The recent M&A news combined with Tesla's (NASDAQ:TSLA) announcement that they will build a "gigafactory" in the Southwestern US makes me believe that consumption will soar over the coming decade and domestic lithium assets could rise exponentially in value. Remember each electric vehicle contains more than forty pounds of lithium.

World's Electric vehicle production and lithium demand for electric vehicle batteries, 2008-2020
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The key for investors is finding potential sources of the raw material in North America. Don't forget the Chinese paid over $625 million for Australia's Talison. I expect further deals to be announced by one of the major producers such as Rockwood , Sociedad Quimica y Minera (NYSE:SQM) and FMC Corp (NYSE:FMC) as they are all looking to capitalize on the growth of this sector. These three stock make up over 43% of the lithium mining ETF. Look for these major companies to acquire lithium mining assets in North America trading at significant discounts.

 


Disclosure: Author does not own stocks mentioned.

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Jeb Handwerger

Author: Jeb Handwerger

Jeb Handwerger
http://goldstocktrades.com

Jeb Handwerger

I started reading charts at eleven years old. One day my father, a market trader and technician found his library of books on technical analysis mysteriously disappearing. He later found the textbooks under my bed. For many years day and night I studied technical analysis and charting, working and learning from my father who has over 50 years of trading experience. Technical analysis is my passion and love.

In 2001, I started noticing the junior mining stocks and gold as having a tremendous upside. For the past 9 years I have researched many juniors and have identified the major winners using technical analysis and finding top management.

I earned a Bachelors Degree in Mathematics and a Masters Degree. I learned most of my technical analysis from the school of hard knocks, managing real money for myself and for my family.

Constantly perfecting my craft, I have traded for two decades of success in many different markets. I have been asked to post ideas to some of my students who have taken my course in charting and technical analysis. I have made an excellent living trading stocks for myself.

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