If I had to talk about some of the best investment themes for 2023, lithium would be among the top few. As a matter of fact, lithium is likely to be an attractive investment theme throughout the decade. I would therefore look at some of the best lithium stock picks for 2023 in this column.

Governments globally have set an ambitious target for electric vehicle adoption. Research, however, indicates that the targets are impossible without a change in the lithium pipeline. To put things into perspective, the lithium supply gap is projected to be acute by 2035. Supply will be at least 1.1 million metric tons, or 24% less than the demand.

Given this scenario, there are two important conclusions. First and foremost, lithium companies will benefit, and investment in new mines is likely to remain strong. Furthermore, lithium price is expected to stay in a long-term uptrend. This will translate into robust cash flows for lithium companies.

With this overview, let’s discuss the best lithium stock picks for 2023.

Albemarle Corporation (ALB)

Albemarle Corporation (NYSE:ALB), which is also a quality dividend growth stock, is the best name among lithium stock picks for 2023. After remaining largely sideways for the last 12 months, the stock looks attractive at a forward price-earnings ratio of 12.1.

Albemarle has, however, been reporting robust numbers backed by the lithium segment. For Q3 2022, the company reported revenue and EBITDA growth of 152% and 447%, respectively, on a year-on-year basis. Further, the company has guided for EBITDA growth of 280% to 300% for the year.

It’s also worth noting that Albemarle ended 2021 with a lithium conversion capacity of 85ktpa. The company expects to increase capacity to 200ktpa by the end of the year. This will translate into healthy growth in 2023. Albemarle has also guided for a lithium conversion capacity of 450 to 500ktpa by 2030. With sustained growth in capacity, the company is well-positioned to deliver incremental cash flows.

Lithium Americas (LAC)

With a likelihood of commercial production from lithium assets in 2023, Lithium Americas (NYSE:LAC) stock is attractive. LAC stock has declined by 33% in the last 12 months. However, the correction seems to be overdone, and a reversal rally is due.

One reason to like Lithium Americas is its high-quality assets. The company expects an average annual EBITDA of $508 million from the asset in the U.S. The asset also has a 46-year life. Further, the company has a 44.8% stake in an Argentina asset with an annual EBITDA potential of $308 million. Lithium Americas, therefore, has long-term cash flow visibility. If lithium price continues to trend higher, cash flow potential will swell further.

In another positive development last month, Lithium Americas announced the company’s split into two entities. Lithium Americas will focus on North American assets. Additionally, Lithium International will focus on investments in Argentina. I believe that this split would result in value unlocking for investors.

Rio Tinto (RIO)

Rio Tinto (NYSE:RIO) is a diversified industrial commodities company. I like RIO stock for several reasons. First, the stock trades at a forward price-earnings ratio of 8.0. This indicates undervaluation even after the recent rally. Furthermore, Rio Tinto offers a robust dividend yield of 9.5%, and dividends are sustainable.

Specific to lithium, Rio Tinto has been targeting expansion in the lithium segment to benefit from favorable industry tailwinds. Last year, the company committed $2.4 billion to the Jadar lithium-borates project in Serbia, which is one of the world’s largest greenfield lithium projects. It’s estimated that Rio will be the largest source of lithium supply in Europe for at least the next 15 years.

In March 2022, Rio Tinto also announced the completion of the acquisition of the Rincon lithium project in Argentina for $825 million. An important point to note is that Rio has strong financial flexibility. For the first half of 2022, the company reported a free cash flow of $7.1 billion. It’s likely that Rio Tinto will continue to acquire lithium assets to benefit from robust price realization.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.