Money Talks: moomoo's ALL about an electrification transition in 2023 and these stocks are ahead of the curve

Money Talks is Stockhead’s regular drill down into what stocks investors are looking at right now. We’ll tap our extensive list of experts to hear what’s hot, their top picks, and what they’re looking out for.

Today we hear from trading platform moomoo Vice President and chief market strategist Matt Wilson.

What is electrification?

Wilson said the electrification transition will be a big theme in 2023 with the world moving away from traditional power sources and petrol driven cars into electric vehicles and renewable energy.

The goal of the electrification transition is often to more traditional power sources, such as fossil fuels, with electricity to reduce emissions and improve efficiency.

He said moves are underway to use electrification to power anything from small devices such as smartphones and laptops, to larger systems such as transportation and industrial processes.

“Lithium and rare earth mining companies have been booming as manufacturers race to lock in sources of critical minerals that are in short supply,” he said.

“Investors can look to individual stocks in the sector or purchase Exchange Traded Funds (ETFs) with a specific theme around lithium or rare earth metals.”

However, he said resources and energy stocks are likely to stay in high demand as the electrification transition will be slower than markets are forecasting.

“Whilst net-zero emissions are the stated goals of western economies, the road to achieving that is not fully achievable due to the massive amounts of new infrastructure and technologies that need to be built,” he said.

“This will mean traditional energy and resources will be sought after for a good while yet.”

Top Picks

Pilbara Minerals (ASX: PLS)

Wilson said PLS is a key player in the lithium spodumene market and in 2023 is forecast to start paying significant dividends for the first time.

“The company is targeting a dividend payout of 20-30% of free cash flow and one forecast from Goldman Sachs suggests free cash flow could hit $1.663 billion in 2023.,” Wilson said.

“A 30% payout ratio could mean a dividend of 17.4 cents a share or a yield of 4.18% (at the current share price of $4.16).”

Rio Tinto (ASX:RIO)

Wilson said the mining giant has risen ~38% from $87.81 in late October 2022 to a recent high of $121.95 on the back of strong demand for iron ore and a possible opening up of trade with China.

“Whilst this rise is significant the demand for iron ore is anticipated to remain high,” he said.

“Rio last year paid out its highest ever dividend of $US10.40 a share including a special dividend of $US2.47 a share.

“This was a very high payout ratio of 79% of net profit and it is likely the company will continue to payout significant dividends in 2023.”

Lynas Rare Earths Ltd (ASX: LYC)

Wilson said rare earth minerals are in huge demand as they are used in magnets, motors, radars, weapons, electronics and most importantly battery technology.

“China accounts for 63% of the world’s rare earth mining, 85 percent of rare earth processing, and 92% of rare earth magnet production,” he said.

Wilson said LYC is one of the largest miners and processors of these exotic minerals in the world.

“Markets and governments around the world are now heavily focused on supply chain sovereignty or ensuring they have enough critical supplies and components to run their industries and defend their countries so expect Lynas to be subject to heavy demand for its products,” he said.

He noted furthermore the US defence department has given Lynas a US$120 million contract to build a heavy rare earths separation facility in Texas as well a US$30 million grant to fund a light rare earths separation facility nearby.

“The share price reached a high of around $11.09 in April 2022 and has drifted lower since,” he said.

“The stock should remain supported at these levels and could represent a good price entry point.”

The PLS, RIO, LYC share price today:

The views, information, or opinions expressed in the interviews in this article are solely those of the interviewees and do not represent the views of Stockhead. Stockhead does not provide, endorse or otherwise assume responsibility for any financial product advice contained in this article.