I’ve written probably far too many notes here about teasers from the esteemed Louis Navellier of late, but I can’t help it — his ads are making fairly huge promises (none yet kept), and they are arriving in a deluge. Perhaps ignoring them would be the saner path, but no one ever accused the Stock Gumshoe of an excess of sanity (it is, after all, a strange and lonely pursuit to chase the investment teasers down into their labyrinthine lairs).
But anyway, we’re one paragraph in here … so I’ve committed. We’ll solve this one and discuss it, should you please, and perhaps this time Louis will come through with a promise that’s achievable.
Thankfully, this time he doesn’t promise that it will double by next Friday, though he does still make some bold assertions:
If you don’t make 50% on this stock, you’ll get Global Gains free. (This is no different than the standard newsletter deal, just to be fair — most of them give a trial period for cancellation, and many will refund unused months upon request)
… and …
The stock should triple, to $150, by Thanksgiving. It might not be a bad idea to lock in those tickets to go see Aunt Mildred in Kenosha with the way fares are rising, but Thanksgiving is still quite some time away — so he’s got four months to make good on that triple. I wouldn’t take even money on it, to be honest, but who knows, perhaps he’ll be right.
But you want to know what the company is, don’t you? We’ll keep moving.
This ad first showed it’s face on July 12, as far as I’ve seen, and it was then called the “Lithium Power Tripler” and he went into some detail about why he likes the potential of lithium batteries for automobiles, including some bla bla bla about BMW and their planned electric engine for the Formula 1 circuit, and the lower cost of electric cars, and the advances moving battery technology forward, etc. etc. etc. You’ve probably heard much of that elsewhere.
Here’s the text he teased us with ten days ago:
“Two names invariably come up at this point: FuelCell Energy and Plug Power. Both have a long learning curve ahead of them, and rate a fail grade on my Portfolio Grader System. So, no dice there.Are you getting our free Daily Update
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“That discovery drove me up the supply chain, looking for an A-rated lithium tech stock. Car manufacturers? Even Toyota gets a D, and The Big Three, well, don’t even ask.
“At last I found the PERFECT lithium-tech stock, a true A rated beauty across 11 different filters: a lithium mine. And here at Global Growth we’re buying every share we can get our hands on.
“…in buying the world’s biggest lithium mine, we put ourselves at the very head of the line for the coming battery boom. Our profit-stream starts flowing now.”
Hard not to agree with him about the electric engine and battery companies — there seem to be millions of them, and most of them are far from profitability and, it seems to me, will be stuck fighting it out in a commodity market for batteries if and when this technology goes mainstream (I could be wrong there, of course, but I’m certainly not one to bet on which battery company will be the strongest one of the next decade). And it’s not surprising that all these companies rate poorly on his portfolio grader service, since that is focused largely on earnings growth and upside surprises and raised estimates … both of which are hard metrics to dominate when you’re unprofitable.
But anyway … I hope you noticed that little bit at the bottom of the quote — “buying the world’s largest lithium mine” … that’s certainly enough to lock down our sleuthing job for the day, but let’s see what else Louis tells us about the company first.
It has doubled in the last three months.
It was up 25% in the second week of June.
And he foresees “Nascar profits in a stalled out market” with a double by Labor day, and a triple by Thanksgiving. Labor day is just about six weeks off or so, so I may have to take it back about Navellier not making outlandish predictions. It’s not as crazy as many newsletter “promises”, but 50% in six weeks is something not many folks have the ability to predict (and I think I wouldn’t be terribly out of line saying “guess” instead of “predict”).
So what is our lithium miner?
Well, as you may have guessed, there ain’t that many of them … and this one is still right around where it was when Louis started touting it ten days ago, the company we’re looking at here is …
This would be my opportunity to show off some mastery of Spanish spelling, but thankfully they mostly call themselves plain old SQM now. This is indeed primarily an agricultural play, a Chilean miner that produces prodigious amounts of nitrates and other natural fertilizers, as well as iodine, lithium, a bunch of other fertilizers and industrial chemicals, etc., for the Chilean market, where they are dominant in many product lines, and for export.
SQM is a large company, and one of the leaders of the Chilean markets at about an $11 billion market cap — the company is about 40 years old, but has only been completely public for about 20 years (it was owned by the government for a while).
And in addition to those core chemical and fertilizer businesses, they are the world’s leading producer of lithium, which, as you probably would gather, is the key ingredient for lithium batteries. That’s the battery that’s powering my laptop as I type this up, and the consensus seems to be that it will be the next great automotive battery (once the safety and cost issues are handled — everyone does still remember that Dell laptop that caught fire, right?). It’s a mainstream battery, but not yet a mainstream automotive battery — the Tesla electric sports car (also known as Elon Musk’s Delorean) uses a gigantic pile of lithium laptop batteries all smushed together, but the Prius, for example, still uses plain old (heavy, safe, reliable, cheap) nickel metal hydride batteries like you’ll probably find in your cordless phone at home, or in older cell phones — not as clunky as the AC Delco under your trunk, but not exactly bleeding edge just yet.
If I made a technical mistake in that paragraph, rest assured that it’s because I’m an idiot, not because I’m trying to deceive.
Anyway, the promise of lithium batteries for electric cars goes back a ways, and I suppose it may become reality before too long — I’d like an electric car as much as the next guy (as long as there’s room for three child seats and two dogs), and I certainly hope automotive technology continues developing apace, and perhaps that electric Formula 1 car from BMW will set a nice standard … I dunno. This stuff always takes longer to reach the mass market than any of us would hope, even developments that now seem to have occurred overnight took years — remember, the first Prius rolled off the assembly line in Japan back in 1997. It will be interesting to see if the Chevy Volt or the next great electric car can build a market any faster than that. Even without a huge car market, however, the continued growth of battery-powered gadgets, laptop computers, and cell phones should probably keep lithium miners quite busy for the foreseeable future, though if there’s an expert on lithium supply and demand out there he doesn’t live between my ears.
But I do know that SQM is going to trade primarily on the price of fertilizers for at least the next few years — and that there is always some risk of lithium competition (I keep hearing about potential big Lithium mines in China, don’t know if they actually have any yet). SQM is the dominant producer of Lithium, but it’s all from one mine area in Chile, so you’ve also got political and location risk that could come out of government policies, taxation changes, labor trouble, environmental problems, etc.. Maybe not likely, since SQM is a huge participang in the Chilean economy, but you never know.
And perhaps more importantly for those looking specifically for a hybrid car play, how much do you want to bet on continued high fertilizer prices or other chemical products, and how much do you want to bet on lithium batteries?
As of last year, fertilizer was 50% of sales for SQM, lithium was 15%. No wonder that the lithium business is “hidden” from Wall Street, in Navellier’s opinion — it’s hard to see it through the stampede of fertilizer investors. In terms of sales, lithium is growing faster than the other segments (iodine and industrial chemicals being the other big ones), but not dramatically so, and from a much lower base.
The lithium mines, by the way, are more like drill sites, apparently — the lithium and iodine come from the salt deposits under the Chilean desert, and it sounds like they pump up brine from underground rivers to extract the various minerals and … stuff. For what it’s worth, SQM owns the rights to this massive desert salt deposit until 2030.
It’s certainly a fast-growing company, though it dipped recently along with all the other fertilizer names, and it might well be worth a look — I’m sure many of you have heard of them, and possibly own shares already — Jim Cramer touted them in June, too, so SQM ain’t exactly hiding (actually, I think Cramer’s endorsement of this one is what spurred it to it’s recent high of about $54 in mid-June). You can still buy shares for about $42 if you’re interested, just about the same price you would have paid when Navellier first started shouting (though Navellier has talked about buying these shares before, I think it was at least a year ago that I last saw him mention them).
Oh, and they do release earnings soonish … on August 12 if they hold to their schedule. I have no idea whether you would want to be in front of or behind the earnings for SQM, in these cases I find it’s often best to buy half before and half after the earnings, especially for a company that has high growth expectations built in … unless you’re an SQM savant and are convinced that the company is an open book to you. The trailing PE is pretty large at 55, but growth has been very fast — earnings grew at 50% and sales at almost 40% as of their last quarterly earnings, and the rate of growth has recently been increasing, another favorite Navellier trait (and it’s hard to argue with him on that one).
Morningstar, for what it’s worth, thinks that the tight lithium market in the coming years might bring some incremental boost to SQM’s earnings, and that their natural nitrate and other specialty fertilizers will keep the growth coming … but they also think it’s a little bit above its “fair value” right now (Morningstar analysts tend to be firmly in the “value” camp, the anti-Navelliers). There have been other pundits opining that SQM looks good after the recent dip, from both Forbes and the Motley Fool. Essentially, if you think that being perched on three fairly hot industries (fertilizer, lithium batteries, and industrial chemicals) is a good thing and you like momentum growth, SQM is your friend, if you’re worried that one or all of those businesses is in danger of falling significantly, perhaps you’ll find others you like more.
In terms of other touchstones for valuation, they do have a teensy dividend (around 1%), and they don’t have much debt. There isn’t much short interest, or much institutional ownership in the US.
If you do want some fertilizer exposure to go along with ownership of a big lithium deposit, it’s hard to argue against SQM unless you’re afraid of growth investing in general. It’s not cheap, and I’d be surprised if it doubled or tripled in the next few months (and, as we’ve seen in the last few weeks, it can drop 20% in a heartbeat), but unless fertilizer prices collapse or the Chilean government starts hating them I expect the stock will probably continue to find plenty of buyers over the long run.