There is a power shift in the mining sector, and tons of variables are up in the air for grabs between the world's two economic powerhouses, the United States and China. When mining lithium and other essential metals is needed for the next technological revolution, there's more upside than you think.
Now that President Xi will be visiting the United States for the first summit since 2022, the agenda seems to be focused on an amicable path forward regarding the latest technology curbs being imposed on each other, as well as addressing China's willingness to accept foreign investments as it embraces world markets.
For now, the focus of the falling dominoes will be on companies like Sociedad Quimica y Minera de Chile (NYSE: SQM), which has been granting Chinese firms rights to its mining lands, as you can probably connect the dots; this is of extreme interest to firms like BYD (OTCMKTS: BYDDY) to get favorable deals on lithium for electric vehicle batteries, but wait there's more...
The market knows something
It looks like mining has been taking a back seat lately, with its underperformance year-to-date relative to the broader S&P 500; you can search in MarketBeat for the SPDR S&P Metals & Mining ETF (NSYEARCA: XME) and compare the stock price action, revealing a lackluster gap of 15.2%.
That's not all. However, Sociedad Quimica has been a heck of a lagger in the same period as it trades at 43.0% of its 52-week high, sending it deep into bearish territory. Despite these stats, analysts are still willing to stick their necks out to reveal what is an undeniable truth.
Sitting at the bottom of the sector with its 5.0x price-to-earnings ratio makes this stock an apparent bargain. However, the future must be relatively strong for analysts to be sure of their $79.4 share price target, which calls for a massive 73.0% rally from today's prices.
Another point of reference for you to keep in mind is the stock's 3.4% dividend yield, which is beginning to catch up to the 3.7% rate of inflation in the United States. It is also the highest yield the stock has offered in more than a decade.
Most investors would stop in their tracks and be happy to have found the world's top lithium miner at such an incredible discount. However, you are not most investors, which is why you will stick around and connect the dots on an even bigger play.
Read the fine print
The world of electric vehicle stocks is like a wild west scenario today, with players spawning from everywhere and promising tales of grandeur. Still, any respectable investor will prefer proof and facts stamped on a track record of success.
The clear leader in this space, according to the popularity contest that is the stock market, is none other than Tesla (NASDAQ: TSLA). People seem to conveniently forget that a major competitor in China got Warren Buffett's approval and is blowing past Tesla in quarterly sales.
After delivering more than 300 thousand vehicles in October alone, BYD is breathing down Tesla's neck and is on pace to exceed the champion's delivery statistics. If you recall from economics class, achieving this volume will unlock economies of scale, but that's where Sociedad Quimica comes in.
BYD earned its place in Northern Chile by outbidding competitors and realizing the importance of the Chilean supply of precious metals and mining rights. It was allowed to build a $290 million lithium-processing facility. This is causing a direct opportunity in both of these stocks.
Since BYD chose to partner with Sociedad Quimica, which operates in the world's largest lithium reserve, not only will both companies achieve economies of scale, but their low-cost and high-volume model can - and probably will - run other competitors out of the sphere.
Comparing BYD's P/E ratio of 23.6x to Tesla's 69.3x will illuminate the market's mispricing environment. Just because BYD operates in China, markets are unwilling to reward it with the valuations it deserves, despite having a deal for supplies and nearly overtaking Tesla in sales.
Do you know who knows the mispricing and is taking full advantage of it? A guy called Ray Dalio ran the largest hedge fund in the world, Bridgewater Associates. He has been buying up shares in Chinese ETFs like the iShares MSCI China ETF (NASDAQ: MCHI), betting on an economic turnaround soon.
Now that Sociedad Quimica's earnings release is coming out soon (November 15), you can bet that some of these analysts will be proven right. Maybe management will touch on its new deals with BYD and increase guidance beyond your wildest dreams.