Broker recommendation

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Why I think Galaxy Resources Limited could be a great buy and hold investment
James Mickleboro | July 27, 2017 | More on: GXY KDR ORE PLS

When it comes to the resources sector, the Galaxy Resources Limited (ASX: GXY) share price is the one which I believe has the most significant upside potential.
Although it is one of the more volatile shares on the market, I think investors with a high tolerance for risk should consider it as a buy and hold resources investment.
According to data by research firm Statista, demand for lithium is expected to rise at a compound annual growth rate of 7.5% through to 2025 when annual demand will reach a massive 410,055 metric tonnes.
The biggest driver of this growth is expected to come from the automotive market thanks to the rise of electric vehicles.
It’s not hard to see why demand from this market is expected to explode. Just yesterday the UK government announced plans to ban the sale of new diesel and petrol vehicles from 2040.
The French government announced similar plans earlier this month as well.
Furthermore, over in China there are an estimated 1 million electric vehicles on the road at present, but this is forecast to rise to over 5 million by 2020 according to the Financial Times.
Now generally when a commodity is in demand and prices are sky high, production ramps up and supply/demand finds its equilibrium.
However, according to fellow lithium miner Orocobre Limited (ASX: ORE), this isn’t expected to happen.
A recent presentation from Orocobre shows that all present and planned supply will fail to satisfy demand, leading to the long-term undersupply of the metal which should keep prices high.
Whilst unknown supply could be added in the future, due to the time it takes to make a mine fully operational, I expect Orocobre’s forecasts to be reasonably accurate.
I believe this bodes well for both Galaxy and Orocobre, as well as smaller lithium miners such as Pilbara Minerals Ltd (ASX: PLS) and Kidman Resources Ltd (ASX: KDR).
So why Galaxy?
As you can see above, there is a lot of choice in the industry. The reason I think Galaxy is the pick of the lot is due to its world-class Mt Cattlin and Sal de Vida operations, quality management team, and strong production rates.
But as I said at the beginning, Galaxy is certainly a high risk investment and as such should be kept to just a small part of your portfolio in my opinion.
Finally, if the lithium miners are a little too high risk for your liking, then take a look at these high quality growth shares instead.