Best Cobalt Stocks to Buy

Best Cobalt Stocks To Buy: In a world full of electronics, batteries are king.

They power everything from smartphones to electric cars, children’s toys to remote controls – basically, all the things that people want and use in this modern age.

For investors, this common demand can mean a big opportunity. Battery elements, like cobalt, are only going to increase in consumption as more people buy the devices that run on them.

What is Cobalt?

Cobalt is a metal that has the ability to focus energy in a very small footprint. Batteries without the substance do not perform well as well as those with cobalt.

The thing about cobalt is that you can’t easily find it in nature – it has an extremely low concentration. Instead, the substance is more commonly a by-product from mining other metals.

Roughly 50% of cobalt production comes from nickel mining and 35% comes from mining copper.

Who is the Largest Cobalt Producer in the World?

Most of the cobalt in the world comes from the Democratic Republic of Congo (DRC) – roughly 64% of the world’s reserves are located within that country’s borders. The rest comes from Australia, Brazil, Canada, Cuba, New Caledonia, Russia, and Zambia.

Over 40% of all the refining that results in cobalt comes from China. Other primary refinery locations include Belgium, Finland, and Zambia.

How Much Cobalt is Used in Electric Cars?

Smartphones use around 8 grams of cobalt per battery, while electric cars can require around 1,000 times that.

Cobalt is the key component in 42% of the batteries used in the world today. For the past five years, consumption of the substance has been growing at a rate of 7.6% per annum – and it is about to explode.

According to the Outsider Club, some analysts are saying that “cobalt’s use in battery applications alone will be greater than the entire world market for refined cobalt at the start of [2020].” If that sounds impressive, it is.

Cobalt use in batteries was roughly 50,000 tons in 2016. Current estimates are that the figure will jump to over 320,000 tons before 2030.

There are several factors driving that figure. Many countries are pushing their people to switch from gas-fueled vehicles to electric ones. China provides subsidies to citizens who want to make the switch and the UK is trying to phase out traditional motors by 2040 and other countries are even more aggressive. India wants to be electric car-only by 2030.

Electric vehicle (EV) manufacturers like Tesla are a driving force for the growth in cobalt demand. However, electric cars are only one factor. Cobalt is used in mobile phones and it is an important part of the superalloys that power wind turbines and high-powered engines. Cobalt also features in power plants, satellites, and more.

Can I Invest in Cobalt?

Investing in cobalt is something you can do in a few different ways. One opportunity is to invest in cobalt futures.

However, commodities are not a good fit for every investor. You can also invest in cobalt miners or cobalt refineries.

Should You Invest in Wheaton Precious Metals?

Wheaton Precious Metals (WPM) is not a pure cobalt play. It is actually a metal streaming company.

This means that the company provides payment to a miner upfront in exchange for a set amount of product from that miner.

Once the metals are mined, the miner sells that product to the streaming company at a set price. It’s like the streaming metal company purchases a “buy option” from the miner.

The strategy is smart in that the company – in this case Wheaton Precious Metals – doesn’t have to actually mine anything and they have agreements in place regarding price so volatility is less of an issue.

Wheaton has been a metal streaming business for years. Traditionally, they dealt in gold and silver, but they recently added cobalt to their portfolio mix. Right now, Wheaton has agreements with cobalt miners Goldcorp, Vale, and Glencore.

Is Glencore a Good Cobalt Stock?

Glencore (GLNCY) is technically not a “cobalt stock.” While the company is one of the largest cobalt miners in the world, it does a lot more than that.

Glencore is a natural resources firm that is based in Switzerland. It owns 150 different operations, including mining, oil production, and agriculture.

With such a diverse portfolio, the company is very well-hedged which may make it less volatile than other, more polarized companies.

Of course, with less risk comes less potential reward too, so keep that in mind. Glencore offers a high dividend (almost 6%) to compensate for that reality.

Are Cobalt Stocks Valuable for Your Portfolio?

Cobalt is a major trend right now, but its future is somewhat uncertain. For one, most of it comes from the DRC and that can create problems for its import. The Congo upped its tax on the export by 50% and the figure could go higher.

The country has talked about labeling cobalt as a strategic resource which would raise the royalty owed the DRC on the metal to 10% by 2%.

There are also child labor concerns around the mining of cobalt. The metal has been called the “blood diamond of batteries.”

If the miners cannot protect their supply chains, conscientious consumers may push for more humane conditions and with that comes increased costs.

This fact prompted Tesla’s Elon Musk to say, “We use less than 3% cobalt in our batteries & will use none in next gen.” Time will tell whether other companies follow suit.

Best Cobalt Stocks to Buy Summary

Investing in cobalt may seem like a no-brainer, but make sure you do your due diligence. While the substance is popular now, companies like Tesla are working to phase out its use.

That may not happen immediately, and some firms will not eliminate the use of cobalt at all. There may be room to make a significant play, however investors should be careful.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.