Demand forecasts for lithium are enough to get any investor excited.

Driven largely by energy grid storage and electric vehicle battery usage, annual demand for the commodity rose 26 per cent in 2016, and is set to climb to 39 per cent in 2018 and 73 per cent by 2025.

But the recent pullback in spot lithium carbonate prices has caused a correction in equities exposed to lithium exploration and development.

However, analysts at Canaccord Genuity point out that contract lithium prices have remained firm, thereby creating an attractive entry point for investors.

They initiated coverage on four of the largest lithium exploration and development companies listed in Canada, which account for roughly one-third of that market.

“We believe that North American investors are now willing to look beyond the failures of the past to see the potential for serious exploration and development companies,” Eric Zaunscherb said in a report titled Lithium 2.0: The Second Coming.

His top pick in the group is Critical Elements Corp., whose Rose project in Quebec offers investors a low-risk jurisdiction, production by 2021, and a “solid” 41 per cent after-tax internal rate of return.

It also has a strong partner in German chemical distributor HELM, while the stock trades at a healthy discount to its peers.

Next up is Lithium Americas Corp., which has the lowest lithium pricing leverage in the group, but has large-scale lithium carbonate production with its partner and industry giant, Chile’s SQM.

Canaccord’s pricing forecasts imply a 39 per cent after tax IRR for the Cauchari-Olaroz brine project in Argentina.

Zaunscherb noted that Lithium X Energy Corp. may be able to start production relatively soon, so its valuation is only being discounted slightly by the market.

The analyst also pointed out that by focusing on production of an intermediate product at the Sal de los Angeles brine project in Argentina, the company limits its upfront spending.

Nemaska Lithium Inc. is Canaccord’s leading name in terms of both liquidity and leverage to lithium.

The company is planning to produce a concentrate at its Whabouchi mineral project in Quebec, then truck it to another facility conversion.

Zaunscherb noted that Nemaska’s higher capex comes with higher value products, and should generate an after tax IRR of 24 per cent.

“Senior partners in the background provide comfort,” the analyst said, adding that the stock’s valuation at 0.14x price-to-net asset value “suggests opportunity.”

Lastly, Neo Lithium Corp. is not currently under coverage at Canaccord. However, it is worth mention as the fourth-largest Canadian-listed exploration and development company, and has made a new lithium brine discovery.

Source: http://business.financialpost.com/investing/trading-desk/5-canadian-lithium-stocks-to-play-surging-battery-demand?__lsa=8863-7b00