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Are ASX Non-Lithium Companies Overvalued Right Now?


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One of the top five best-performing stocks on the ASX in 2022 is a company that explores lithium, but has not produced a single gram of the commodity.

But this is not unusual. The stock market is forward-looking, and investors tend to make decisions based on the future prospects of young companies in hot sectors such as lithium mining.

What are the most popular lithium stocks in the market today?

At the moment, investors are just loving it Core Lithium Ltd (ASX: CXO). Its share price has risen by about 130% since the beginning of the year. Investors are clearly excited about its future.

Like all ASX shares of lithium, Core Lithium benefits from record lithium carbonate price. It may not be producing yet, but it is reportedly only months away from first production at Finland’s Northern Territory lithium project.

For now, Wilsons equity strategist Rob Crookston is bullish on lithium stocks, but skeptical of non-producers.

Crookston writes further Live wire:

We prefer lithium miners, for example Allkem Ltd (ASX: AKE), which currently produce lithium. We are more skeptical of small non-producers. We believe there is more wealth in non-producers and valuations may exceed fair value.

Although Crookston doesn’t refer to any specific non-producers, you can see his logic, right?

The price of lithium carbonate reached a new record high of US$77,767.49 per tonne this month. It just keeps setting new benchmarks as demand for electric vehicles around the world continues to grow.

So, of course, it makes sense that companies that are already mining lithium out of the ground and bringing it to market right now are best positioned to capitalize on record commodity prices.

The Wilsons team loves Allkem the most

Allkem is the preferred lithium stock of the Wilsons ASX team. Crookston explains:

AKE is one of the top 5 lithium producers in the world, dealing in brine, spodumene and hydroxide. Business operations are spread across Argentina, Australia, Canada and Japan.

The company has deep brine and hard rock lithium resources and extensive experience in these areas. AKE brine production is low cost compared to the spodumene (hard rock) mines of Western Australia.

We believe that the consolidation of AKE, one of the largest players in the “Lithium Triangle” of South America, is likely to be planned. The company may acquire smaller explorers to increase its capacity.

Allkem shares closed Friday at $14.07, down 2.76% on the day and up 26% in 2022.

What other ASX lithium stock does Wilsons back?

Pilbara Minerals Ltd (ASX: please) is another lithium favorite of the Wilsons team.

Crookston says:

[Pilbara is a] pureplay lithium miner. Owns 100% of the Pilgangoora lithium mine in Western Australia, as well as an 18% joint venture with POSCO with an option to increase to 30%.

Spodumene production is expected to increase to ~1 million tonnes by FY28 compared to 360k tonnes in FY22.

While PLS looks attractive at short-term valuation multiples, the company appears to offer a less attractive valuation in the medium term.

Shares in Pilbara Minerals ended Friday’s session at $4.87 apiece, down 4.7% on the day and up 38% in 2022.


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