SQM vs. Albemarle vs. FMC Corp.: Which Had the Best Lithium Business Results in 2017?

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Lithium stocks were white-hot in 2016 and 2017, as demand has been booming for the silvery-white mineral to make lithium-ion batteries for electric vehicles (EVs), with supply having a difficult time keeping up. They have, however, pulled back in 2018 on concerns among some market participants about an oversupply situation arising due to all the major lithium miners ramping up production capacity.

Most investors who are interested in exposure to lithium should stick with one of the major lithium producers, as junior miners are quite risky. The three big players listed on a major U.S. stock exchange are Albemarle (NYSE: ALB), Sociedad Quimica y Minera de Chile (NYSE: SQM), or SQM, and FMC Corp. (NYSE: FMC).

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With the aim of helping investors make investment decisions in this space, we're going to compare how these companies' respective lithium businesses performed in 2017. Keep in mind a few things: None of these companies are pure plays on lithium, so their overall desirability from an investment standpoint will depend on how all their businesses perform; qualitative factors can be just as meaningful as quantitative ones; and future results are more important than current ones.

Lithium segment revenue

Company

2017 Result

Albemarle

52% year-over-year increase to $1,018.9 million

SQM

25% increase to $644.6 million

FMC Corp.

32% increase to $347.4 million

Advantage: Albemarle.

North Carolina-based Albemarle has the advantage here as it's not only the largest player in the lithium market by revenue, its year-over-year revenue growth was also the highest among the big three players in 2017. Size does bring some power in the market and likely some economies of scale. That said, lithium segment earnings are arguably more important. After all, earnings growth is what powers a company's stock.

Lithium segment earnings

Company

2017 Result

Albemarle

56% year-over-year increase to $446.7 million

SQM

34% increase to $453.3 million

FMC Corp. 81% increase to $126.7 million

Advantage: FMC Corp.

Looking at this one from an earnings growth standpoint, Philadelphia-based FMC takes the crown. That said, investors should keep in mind that it's easier for a smaller company to grow on a percentage basis than it is for a larger company because it's starting with a smaller base number.

Lithium segment profit margin

Company

2017 Result

Albemarle

43.9%

SQM

70.6%

FMC Corp. 36.5%

Advantage: SQM.

Chile-based SQM is the decisive winner here, though don't get too hung up on absolute numbers, as the companies likely calculate their earnings measures in different ways. Profit margin reflects two main things -- how efficient a company is at producing lithium and its product mix. SQM has long been considered the lowest-cost lithium producer. While there are likely several reasons for this, one huge one is that the company's source for lithium -- brine at the Atacama salt desert in Chile -- is extremely lithium-rich. In general, it's more cost-effective for companies to obtain lithium from the brine in underground reservoirs than it is to obtain it from spodumene, which is a hard-rock source. Albemarle also "mines" lithium from brine at the Salar de Atacama. However, it also has two other sources of lithium -- a brine operation in Nevada and a hard-rock joint venture with China's Tianqi in Australia -- which surely aren't as profitable as its Chilean operation. FMC has a lithium brine mining operation at the Salar del Hombre Muerto in Argentina.

As for product mix, the companies sell various types of lithium products, with battery-grade lithium carbonate and lithium hydroxide the two compounds that are used to make lithium-ion batteries for EVs.

Size of lithium business relative to overall business

Advantage: SQM.

FMC has some distinct positives: It has the most vertically integrated lithium business and its acquisition of a portion of DuPont's (now DowDuPont) crop protection business in the fourth quarter should bode well, as this business is quite complementary to the company's existing agricultural chemicals business. That said, SQM and Albemarle are currently better bets for investors who are most interested in a lithium play, as they're much closer than FMC to being a pure play on lithium.

There's a big "but" here: FMC is planning to spin off its lithium business in the second half of this year. The new entity is on track to being the only lithium pure-play listed on a major U.S. stock exchange.

The bottom line for investors

This exercise doesn't lend itself to choosing a "winner," as these stocks have notable differences. SQM looks great on many quantitative fronts, but it's located in a foreign country -- and a developing one, at that -- which exposes investors to more risks from a financial, currency, and political standpoint than the two U.S.-based companies. So it's best suited for investors with higher risk tolerances. Albemarle is a good match for investors who want a stock that's also closer to a pure play, but don't want the exposure to SQM's additional risks. And FMC is suited for investors who want a solid agricultural chemicals play, with a lithium spin-off coming soon.

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.