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10.28.2017 - Free Investment Newsletter Bookmark

Battery Profits

 

On Wednesday I wrote an introduction into the electric car space, and of course hit on solar, and the various gadgets that we use, all of which need batteries. Batteries are the single most important feature of an electric vehicle ( EV from here out) and battery life, is also one of the more important issues when buying say a laptop. ( or cell phone for that matter)

 

There’s a lot of different types of batteries on the market. The most common that people think of is their car battery, and then of course the AAA, AA, C’s and D’s that they use in flashlights, and assorted gadgets. But it’s much more than just that. Over the years, battery manufacturers have been on the hunt for longer life, more cycles, higher current returns, etc. That’s brought them a long way from the “lead/acid” battery in most vehicles today.

 

So let’s start with some real basics first. What the hell is a battery anyway? Well, most people think that a battery is where electricity is stored, and frankly that is NOT correct.  Batteries store the “Chemical” energy that is needed to produce electricity.

 

Let’s take a common battery and try and understand the basics of how it works. Batteries are a collection of one or more cells in which  chemical reactions create a flow of electrons in a circuit. All batteries are made up of three basic components: an anode (the ‘-’ side), a cathode (the ‘+’ side), and some kind of electrolyte (a substance that chemically reacts with the anode and cathode).

 

When the anode and cathode of a battery is connected to a circuit, a chemical reaction takes place between the anode and the electrolyte. This reaction causes electrons to flow through the circuit and back into the cathode where another chemical reaction takes place. When the material in the cathode or anode is consumed or no longer able to be used in the reaction, the battery is unable to produce electricity. At that point, your battery is “dead.”

You can see that in your typical car battery. You’ve got a positive terminal (the cathode) you’ve got electrolyte (the acid/water in the cells) and your negative or Anode terminal.

 

For hundreds of years, the rush has been on to find better materials for the anodes/cathodes and electolytes. They’ve used everything from copper, lead, mercury, Zinc, lemon juice, salt water, Nickel, Hydrogen, you name it.

 

But in the last 40 years things have moved pretty rapidly. From lead acid to nickel cadmium, to alkaline, to metal Hydride,  1991 introduced us to the “lithium ion” battery.  Sony released the first commercial lithium-ion battery in 1991.

 

Lithium-ion batteries have high energy density and have a number of specific cathode formulations for different applications.

 

For example, lithium cobalt dioxide (LiCoO2) cathodes are used in laptops and smartphones, while lithium nickel cobalt aluminum oxide (LiNiCoAlO2) cathodes, also known as NCAs, are used in the batteries of vehicles such as the Tesla Model S.

 

Graphite is a common material for use in the anode, and the electrolyte is most often a type of lithium salt suspended in an organic solvent.

 

That’s basically where we’re at right now. While there’s hundreds of experiments going on in hundreds of universities and research lab’s, 99% of the EV’s and gadgets we use are powered by a lithium-ion battery of sorts.  Yes in the future I think that there’s going to be breakthough’s. I recently read an article whereby they’re developing an “air” battery, which lasts longer, is safer, charges quicker and is 40% cheaper. These sorts of things will indeed evolve.

 

Well, as I showed the other day, demand for these things is skyrocketing. As more and more EV’s are being created, and as more and more cities, towns and even nations are leaning toward banning Gasoline vehicles, the demand for more and better batteries is soaring. That means the component parts of the battery, like graphite, like lithium, like cobalt, is soaring.

 

While digging for any material is nasty and scars the environment, let’s face facts. The push for nations being in Africa is for the resources. For some reason the world turns a blind eye when disgusting pit mines running with toxic water is located in the dark of Africa. Yet did they must because of the demand for these minerals.

 

So, does it make sense to be investing in the companies that are acquiring these things? Well, yeah, and no. We don’t want to just jump on every company that happens to mention that somehow, someday, they’ll be involved in Graphite or Lithium. But there are a handful of companies that are indeed legit, and stand to make a lot of money as demand soars.

 

One of the best by far is Albemarle.  From their site:  Albemarle Corporation (NYSE: ALB), headquartered in Charlotte, NC, is a global specialty chemicals company with leading positions in lithium, bromine, refining catalysts and applied surface treatments. We power the potential of companies in many of the world’s largest and most critical industries, from energy and communications to transportation and electronics.

 

Of course the issue is that ALB hjas been over 100 a share for a long time, currently at like 139. That’s pretty expensive, even though they are best of show in the industry.

Next up in the running has to be FMC.  FMC has an entire lithium division and their lithium is used world wide. But like ALB, they’re expensive. We’ve had a market running straight up for almost 9 years. Everything’s too expensive. That said, they’re positioned well to make money on Lithium.

 

From there we need to look at SQM.  SQM, a worldwide company based in Chile and founded in 1968, has today a strong global presence in a wide variety of industries and applications through its five business lines: Specialty Plant Nutrition, Iodine and derivatives, Lithium and derivatives, Industrial Chemicals and Potassium. They make a large percentage of their profits out of lithium and it will increase.

 

After those big names, we fracture into smaller names. These are companies with five letter symbols, meaning they’re over the counter. LRTTF and LACD. Based out of Vancouver, LACDF has a new project working in Nevada ( quite close to the Tesla plant actually) and If this works, this little $1.60 stock, could easily be a 5 – 10 dollar stock.

As you see, all of these are based on Lithium, but lithium isn’t the only game in town. Graphite is the material they like to use for the composition of the anodes, and Graphite demand is almost if not just as strong as lithium. The problem is that the 4 best graphite companies are based in Canada and don’t trade on our exchanges.  Some don’t even have over the counter listings.

One that does is Mason Graphite and we can buy that here. The symbol is MGPHF and it currently trades at 2 dollars per share. It’s a good outfit with some interesting new areas coming on line.  You could also look at SYAAF, as they have large reserves, but not every trading platform can trade them.

 

Finally, like all things market, there’s an ETF we can utilize and hopefully capture some upside, without having to pick the exact individual winners.

 

LIT is the lithium based ETF that tries to include the companies involved with lithium production. I must have been pretty asleep at the wheel because I mentioned this ETF back in 2015 when talking about Solar batteries. It was 19 dollars then. It’s 38 now.  I still think it’s a worthwhile investment, however like all things market, things are really stretched after 9 years of Central bank money printing.

 

Finally there’s REMX.  A little off the path, this is a rare earth/strategic metals ETF, but in it’s portfolio are indeed two good lithium companies. So, there’s a decent chance that between their titanium’s and what have you, there’s probably enough lithium push to keep this entertaining also.

 

So there you have it. The companies that will be providing the chemicals that turn into electricity, and power our cars and laptops and what have you. Take a look at them and see if there’s anything in there that interests you.

 

The Market:

 

So, during two horrible hurricanes, not only didn’t it affect the economy, somehow we grew at a 3% pace, something not seen in years. That’s sort of interesting isn’t it? Is it even believable? Not really, but don’t let that bother you.

 

Smoke, mirrors, engineering and games are the norm in 2017. For instance two nights ago it was the big four that released earnings.  Alphabet ( google) Microsoft, Intel and Amazon all apparently did phenomenal.  Or, did they?

 

A lot of people that don’t do the digging into the numbers, don’t understand why and how I rant against all the manipulation. They simply don’t seem to understand what my point is. So let’s give an example.

 

Last year, estimates for Amazon’s 2017 Q3 earnings were 2.00 per share. Then coming into 2017 they were lowered to 1.50. Then lowered to a dollar and finally lowered to about 5 cents per share. So, they post 50 cents, the street screams about how incredible it was that they “blew away the estimates”  and the stock gains 128 points, putting on BILLIONS in market cap.  What about those estimates of 1.00, 1.50 and 2.00?  Pay no attention to them. They were misguided. What about their tax rate falling from 46 to 18%? Ignore it. What about the fact that their retail side lost 822 million, while their cloud operation did make a billion, but 600 million of that comes from the CIA. ( really)

Right. And so it goes. As I’ve been mentioning lately, at this stage of the melt up, any and all bad news will be ignored, and anything that they can spin into good news is going to be rewarded like it’s 1999. 

 

While it would be customary for a little “backing and filling” after a huge up day like Friday, the pattern has been to “buy the dip” no matter how insane you think this all is.  So if you’ve been looking to catch some quick action, if the market is punk on Monday, it might be your chance. Red days are pretty much illegal now, so if we get one, they tend to erase them the next day.

 

Lean long, and hope for the best. We are definitely in 1999 again. 

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