Investors may want to buy weakness in lithium stocks, like Albemarle (ALB). Sure, Goldman Sachs said it expects for lithium prices to fall about 10% this year. Then, by next year, the firm believes lithium could fall about 73%.

But that’s not going to happen.

The world wants to put millions of electric vehicles on the roads, which means we need far more lithium than we have now. Unfortunately, at the moment, there’s more demand than supply, and that isn’t going to change that quickly. As Bloomberg reports, analysts at Macquarie Group Ltd. warned of a “a perpetual deficit,” while Citigroup Inc. nearly doubled its price forecast for 2022, saying an “extreme” rally could be coming.

We also have to consider that Albemarle just boosted its outlook because of strong demand.

“Demand for electric vehicles—and the batteries that power them—has driven prices for key metals higher, even sparking fears of shortages of materials like lithium, cobalt and nickel. Lithium supplies are a concern in particular because there’s no substitute for it in electric vehicle batteries. A gauge of lithium prices more than doubled in the first four months of this year after surging 280% last year,” added Bloomberg.

That demand plus limited supply won’t lead to a price drop.

Even better, Albemarle just crushed earnings. The company just posted EPS of $2.38 from $1.1 billion in sales, as compared to expectations for EPS of $1.64 from $1 billion in sales. A year earlier, the company posted EPS of $1.10 from $829 million in sales. Full-year sales are expected to be about $5.4 billion, and EBITDA is expected to be about $1.85 billion. Analysts like the stock, too.

BMO Capital analyst Joel Jackson has assigned an “outperform” rating and a $280 price target on Albemarle. As The Fly notes, the analyst also raised his FY22 EPS view to $12.87 from $9.83 after the company boosted its outlook again on better lithium prices. Even Deutsche Bank analyst David Begleiter raised the firm’s price target to $320 from $290, assigning Albemarle a “buy” rating.

With all of that in mind, we’d use weakness in Albemarle as an opportunity to buy.

— Ian Cooper

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Source: Investors Alley