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Both AGL Energy Ltd (ASX: AGL) and Pilbara Minerals Ltd (ASX: PLS) present intriguing investment opportunities due to their exposure to the growing energy sector.
These companies, part of the S&P/ASX 200 Index (ASX:XJO), are not immune to market volatility. As illustrated in the chart below, their share prices have experienced significant declines in recent years.
Over the past five years, AGL's share price has dropped approximately 50%, while Pilbara Minerals' share price has decreased by 42% since August 2023. A lower share price does not necessarily indicate a good buying opportunity, but it's still worthwhile to analyze and compare both stocks.
Energy Prices are Crucial
Predicting the future of lithium and electricity prices is challenging.
AGL:
- As an energy generator and retailer, AGL benefits from rising energy prices.
- UBS recently noted an increase in near-term wholesale prices, raising its expectation for wholesale electricity prices to $90 per MWh, due to slower renewable build-out and higher costs for new generation.
- AGL's net profit after tax (NPAT) is expected to grow at a compound annual growth rate (CAGR) of 9% between FY26 and FY29.
Pilbara Minerals:
- As a major lithium miner, Pilbara Minerals would benefit from a rise in lithium prices driven by the electric vehicle market.
- However, UBS forecasts a spot price for lithium spodumene between US$1,050 and US$1,075, reflecting a well-supplied market with potential downside risk due to strong supply from Africa and stagnant demand for plug-in hybrid electric vehicles (PHEVs).
- UBS is cautious about Pilbara Minerals' expansion plans, suggesting that increased production could delay price recovery to incentive-based levels.
