Shares of Standard Lithium (SLI 8.90%) surged as much as 18% in early trading Thursday before turning tail and giving back much of their gains. Despite the reversal, as of 2:22 p.m. ET, the stock remains up 7.8% -- and it's no mystery why.
Inspired by news of Rio Tinto Group's $6.7 billion bid to acquire Arcadium Lithium (ALTM -0.09%) yesterday, investors are glomming on to Standard Lithium -- a $2 lithium stock with neither profits nor even revenues -- as a "cheap" way to bet that lithium prices are about to bounce.
It's not a completely logical idea. Rio Tinto did, after all, say yesterday it was buying Arcadium Lithium as a "countercyclical expansion into a high-growth market" -- hinting that it believes the cyclical lithium mining sector is near-bottom, and that both demand for and prices of lithium are ready to grow again.
Buying beaten-down lithium stocks right before a rebound in lithium prices does make a certain kind of sense (assuming Rio is right). That being said, investors in this sector need to be picky about which lithium stocks they choose to invest in. And there's a big difference between buying a lithium stock like Arcadium and buying one like Standard Lithium.
At $2 a share, Standard Lithium looks cheaper than Arcadium, which costs closer to $6 a share. However, there's a reason (actually a couple of them) why Standard Lithium stock is so cheap.
First and foremost, Arcadium Lithium is an actual lithium producer, whereas Standard Lithium is more of a lithium producer wannabe, still getting production set up, and with no revenues reported in the last 10 years. In fact, according to analysts, Standard Lithium isn't expected to generate revenue until 2028 at the earliest. Profits will take even longer to emerge for Standard Lithium, whereas Arcadium Lithium reported earnings of $226 million last year, and could more than double that through 2027.
Simply put: Arcadium Lithium stock is a buy -- and Standard Lithium is not.
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