To The Moon

Summarised from an experts article today on livewire.com，By Kingsley Jones.

The current market correction has presented investors with an opportunity to establish core positions in profitable mining companies that have quality exposure to the long-term theme of electric vehicles (EV). In this wire, we share the results of our recent work in constructing an "investible universe" of liquid ASX-listed companies with exposure to the EV thematic.

There are many ways to approach investment in the electric vehicle trend, but there are next to no downstream companies listed on the $S&P/ASX 200(XJO.AU)$ . If you want the car makers, it is necessary to go to the USA, Europe, Japan, South Korea, or China. However, if we zero in on some of the key materials that are used to make electric vehicles then Australia is a rich hunting ground.

These are the primary electric vehicle metals:

- Lithium (Li)

- Nickel (Ni)

- Cobalt (Co)

- Manganese (Mn)

- Rare Earth Metals (REE)

These metals, along with graphite, play a key role in the global shift towards electric vehicles.

Source: visualcapitalist.com

Investor interest in these is part of the wider trend of so-called critical minerals, that are widely used in high-technology applications ranging from: electric vehicles; to smart phones; defense systems; renewable energy; nuclear technology; and exotic scientific applications.

Each company is tagged with the keyword classification terms of interest. This does not mean the company only does that, or even that this is the dominant source of revenue. Such lists are where the research process starts in earnest, according to the investor goal.

In this wire, our main interest is to locate a core basket of the larger and more profitable names that will provide diversified exposure to all five of the target EV metals. Of course, graphite is also used in electric vehicle batteries, but we will leave that out of this analysis.

Using a combination of quantitative signals, that relate to firm profitability, via the trailing and forecast earnings multiples (PER and FwdPER), dividend yield, and a composite quantitative alpha signal, it becomes easier to zero in the more appropriate companies to look at. We also screen out smaller firms with market capitalization less than $1B AUD. 

• Have average 30-day market cap > $200M AUD
• Have average 30-day trade > $500K AUD/day
• Have average 30-day price above $0.10 AUD

ASX Listed Companies with EV Minerals exposure passing liquidity screens (Pricing date: 4-Jul-2022)

The resulting short-list cuts the number of firms down from 42 to just 8.

$South32(S32.AU)$ is across multiple mining jurisdictions in Australia and South Africa with a diversified commodity mix, a cheap valuation and an attractive yield.

$Nickel Mines(NIC.AU)$ appears cheap, but operates in Indonesia.

$IGO Ltd(IGO.AU)$ for the quality of the onshore nickel and lithium exposure for onshore assets in Australia.

$MINERAL RESOURCES LTD(MIN.AU)$ has some hard rock lithium but has high exposure to iron ore, which has near-term weakness.

$Allkem Limited(AKE.AU)$ adds brine sources of lithium in Argentina, and hard-rock mines in Canada and Australia.

$Pilbara Minerals Ltd(PLS.AU)$ in the basket adds further Australian hard-rock lithium, plus significant processing plant opportunity at Pilgan and Ngungaju.

$Lynas Rare Earths(LYC.AU)$ and $ILUKA RESOURCES LIMITED(ILU.AU)$ offer complementary Rare Earth Metals exposure.

Data from Tradingview

The 8 stocks' YTD in 2022 are as above. 

This is our Magnificent Seven basket of ASX-listed EV-metals majors, which are currently profitable, have market capitalisation greater than $1B AUD, and pass our related liquidity screens. 

This bouquet of stocks are being marked down due to recession fears. Rather than pay bull market prices, long-term investors now have an excellent opportunity to build exposure to the burgeoning electric vehicles thematic.

The electric vehicle trend is here to stay, along with higher structural demand for lithium, nickel, cobalt, manganese and rare earths.

Rather than overthink the investment case, or get lost in market timing, it makes sense to think about building positions, at lower prices, through a staged investment strategy.

Always keeping some cash in reserve, and allocating appropriate amounts of capital across firms that are at different stages of their development is a prudent risk management tool.

Source: https://www.livewiremarkets.com/wires/42-stocks-to-play-the-magnificent-seven-of-ev-metals