Top five lithium stocks of 2010 (ULBI, FMC, SQM, VLNC, XIDE)

One of my favorite anecdotes about lithium-ion power comes from a GM exec by the name of Robert Lutz. In 2007, Lutz's engineers were telling to forget lithium-ion batteries.

“All the geniuses here at General Motors kept saying lithium-ion technology is 10 years away, and Toyota agreed with us – and boom, along comes Tesla,” Lutz said during an interview. “So I said, ‘How come some tiny little California startup, run by guys who know nothing about the car business, can do this, and we can't?' That was the crowbar that helped break up the log jam.”

The freed up log jam would ultimately become the inspiration for the lithium-ion-powered Chevy Volt, which is due in showrooms soon. It seems lithium-ion technology wasn't 10 years away. It's taking over the car industry right now, and that's got analysts thinking demand for lithium will at least double over the next decade. That sounds like a conservative estimate to me, especially considering the rather powerful moves we've seen in lithium stocks this year.

Investors are trying to get out ahead of the curve, and here's a short list of 2010's best-performing lithium stocks on major American exchanges:

1) Ultralife Corp. (NASDAQ: ULBI), +60.4% YTD

2) FMC Corporation (NYSE: FMC), +45% YTD

3) Sociedad Quimica y Minera (ADR) (NYSE: SQM), +43.5% YTD

4) Valence Technology, Inc. (NASDAQ: VLNC), +39.5% YTD

5) Exide Technologies (NASDAQ: XIDE), +26.5% YTD

Of the five stocks above, I like Exide the most. It's got a relatively small market cap at $690 million, and it's trading at a low profit-to-earnings ratio of 12.4. One of the world's largest producers of lead-acid batteries, Exide's seen the writing on the wall (and the writing says lithium-ion). That motivated their two-year-old move to acquire Mountain Power Inc., a private Canadian company that specializes in lithium-ion batteries. Exide should be able to leverage its size and experience in lead-acid batteries to move into a brave new lithium-ion world.