Top Five Undiscovered Stocks Powering the Energy Transition
As the world embraces the energy transition, mining and metals companies stand to be major winners. Creating and storing renewable energy requires vast amounts of metal. Batteries need to be built with lithium and cobalt. The grid needs to be expanded with copper and aluminium. And powerful magnets need creating with rare earth elements. Below we look at some of the top stocks powering the transition.
Gem (China: 002340)
- Market cap: US$5.6B
- P/E ratio: 3
- Index weight: 3%
GEM, which stands for “Green-Eco Manufacture”, is a Chinese recycling company focused on re-using old batteries, electronics, and cars. The company can process over 3,000,000 tonnes of recyclables annually and claims to have processed roughly 10% of China’s used batteries and e-waste, and 4% of scrapped vehicles. These statistics extend to estimated reductions of carbon emissions by more than 2,000,000 tonnes of CO2 and reduced soil pollution of over 20,000 km. Lauded as one of the top five environmentally conscious companies of China, GEM highlights the role recycling companies will play in producing the metals needed to power the energy transition.
First Quantum Minerals (Toronto: FM)
- Market cap: US$12.12B
- P/E ratio: 19
- Index weight: 3%
First Quantum Minerals is the eighth largest copper miner by production volume as of Q1 2022 (in other quarters it has ranked higher). While there are companies that produce more copper on an absolute volume basis – such as BHP and Freeport – First Quantum Minerals stands out as a pureplay, with almost 80% of its revenue coming from copper. While copper miners may sound less exciting, they stand perhaps the most to gain from the energy transition as copper is universally used in renewable and clean energy technologies. In Q1 2022, First Quantum saw its adjusted earnings grow 57% over Q4 in 2021, driven by record copper prices.
Zhejian Huayou Cobalt (Shanghai: 603799)
- Market cap: US$12.75B
- P/E ratio: 20.1
- Index weight: 4.4%
Zhejiang Huayou Cobalt (often referred to as “Huayou Cobalt”) is one of the top global suppliers of the metals used in EV batteries (cobalt, nickel, copper), and the largest cobalt producer in China. According to the European Federation for Transport and Environment, the battery of an electric car alone can have up to 10kg of cobalt, 30kg of nickel and 20kg of copper, with cobalt being the most expensive material of the pack. With the global demand for EV’s projected to account for more than 50% of cars on the road by 2030, Huayou cobalt seems to be positioned perfectly for immense growth going forward. The company has also worked extensively to ensure the removal of child labour from its Congo supply chain – a major humanitarian issue in the cobalt industry.
Innuovo Technology (China: 000795)
- Market cap: US$1.01B
- P/E ratio: 83
- Rare earth metals
- Index weight: 2%
Innuovo Technology is a rare earth permanent magnet maker headquartered in Taiyuan, China. They specialise in rare earth metals like neodymium and samarium, which are used to make some of the strongest magnets known to man. Electric vehicles (EVs) use these extremely strong repelling magnets to turn the axel and spin the wheels. Conventional cars, by contrast, heat petrol to high temperatures, compress it, and then explode it to turn a car’s axel. The growth of EVs makes these magnets and rare earth metals being produced by Innuovo some of the world’s most in demand commodities.
Albemarle Corporation (New York: ALB)
- Market cap: US$33.69B
- P/E ratio: 33
- Index weight: 3%
Albermarle is the world’s largest lithium producer, and sometimes referred to as the world’s biggest lithium stock. Lithium companies used to be very niche and known only to specialists, as most of the demand for lithium came from mobile phone batteries. However, thanks to the growth of EVs – which, essentially, have giant mobile phone batteries underneath them – these once obscure companies have become household names (such as Pilbara and Allkem in Australia). With lithium prices forecast to stay elevated due to a stubborn supply deficit, lithium companies like Albemarle are well-placed to benefit from the energy transition.
GMTL: For those wishing to invest in energy transition metals miners, Global X Green Metal Miners ETF (GMTL) provides a solution. Gain exposure to global companies which produce critical metals for clean energy infrastructure and technologies, including lithium, copper, nickel and cobalt.
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