Lithium stocks may have been crushed by oversupply issues but I’d use weakness as an opportunity to buy. That’s because the supply issues and low lithium prices are just temporary.
For one, lithium prices will eventually push higher again. That’s because, as I noted on Jan. 21, “With some lithium mines shutting down or reducing production we could see less supply. This could help stabilize prices and send lithium prices higher with demand.”
Second, when interest rates start to come back down, we should see a resurgence in interest in all things green energy-related. That includes the likely return on electric vehicle demand. All of which require lithium.
Third, current low lithium prices are not sustainable. Higher prices are needed for the next wave of supply investments required if long-term growth demand is to be met. That being said, I’d start buying up beaten-down lithium names before the herd does.
Albemarle (ALB)
The last time I mentioned lithium giant Albemarle (NYSE:ALB), it traded at around $120 per share on Feb. 26. Today, even with all the chaos, it’s up to over $138 per share. From here, it could potentially run back to $155 per share near term. Moving forward, as lithium prices eventually recover lost ground, I expect to see ALB stock rally back above $200 a share.
Fueling its upside potential, the company just declared a 40-cent quarterly dividend, payable Apr. 1 to shareholders of record as of Mar. 15.
Analysts at Mizuho also just raised their price target on ALB from $105 to $115 per share, with a neutral rating assigned. Oppenheimer analysts also say it’s time to buy ALB again. The upbeat outlook is thanks to Albemarle’s improving financial performance and its move toward cash generation, as noted by TipRanks.com. Oppenheimer also noted that “We anticipate the next 4-8 weeks will be instructive on timing for a recovery on lithium prices. We remain bullish.”
Arcadium Lithium (ALTM)
I also previously highlighted Arcadium Lithium (NYSE:ALTM) as it traded at $4.65 per share.
I noted, “At just $4.65 a share, it’s only trading at 6.6x earnings, and with a price-to-earnings growth ratio of just 0.35. Still, ALTM is showing some signs of life, with RSI, MACD, and Williams’ %R starting to pivot higher.” Today, ALTM is up to almost $5.50 per share. From here, if it can break above resistance there, it could refill its bearish gap around $6 initially.
This is another powerhouse lithium stock that could double, if not triple, as lithium recovers.
Scotiabank initiated a Sector Perform rating on ALTM with a $6.25 price target. As noted by TheFly.com the firm is currently focused on stocks that will outperform their peers when spot lithium begins to improve. Also, earnings were okay. Earnings per share (EPS) of 34 cents beat consensus estimates by 11 cents. However, revenues of $181.8 million were down about $36.9 million. Both should improve with lithium prices moving forward.
Sociedad Quimica y Minera (SQM)
Sociedad Quimica y MInera (NYSE:SQM) is also coming back strong. After bottoming out around $41, it’s now up to around $50 where it tests prior resistance at $50.73. Earnings, however, weren’t so hot.
Fourth-quarter profits fell by 82.3% to $203.2 million from $1.151 billion year over year. Unfortunately, that’s to be expected with lithium prices pulling back as aggressively as they have. However, company CEO Ricardo Ramos did see a silver lining. He is seeing record-high sales volumes in the lithium business as well as growth in its iodine and potassium markets.
Analysts at BBN note, “Looking forward, Ramos is optimistic about the lithium market in 2024, spurred by the growing demand for electric vehicles and battery materials. SQM’s strategic partnership through a Memorandum of Understanding with Codelco for the Salar Futuro project aims to ensure sustainable operations in the Salar de Atacama beyond 2030.”
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
