The demand for lithium is showing no signs of relenting. Lithium is a crucial component in electric vehicle (EVs) batteries, and demand for it has ballooned almost in sync with the burgeoning demand for EVs. The demand for lithium has now outstripped its supply, leading to record high lithium prices.
With supply constraints expected to remain well into 2022, lithium prices are expected to remain elevated. According to an S&P Global Market Intelligence forecast, lithium supply will rise to 636,000 MT from an estimated supply of 497,000 MT in 2021, while lithium demand in 2022 will be 641,000 MT LCE, up from an estimated 504,000 MT in 2021, which indicates that there will be a 5,000 MT LCE supply deficit in 2022. With the supply of lithium failing to meet growing demand, there has been a rise in interest in alternatives to lithium-ion batteries, such as hydrogen fuel cells, graphene supercapacitors, aluminum graphite batteries, solid-state batteries, and others.
Against this backdrop, we think it could be wise to avoid lithium stocks Albemarle Corporation (ALB) and Livent Corporation (LTHM). They look overvalued at their current price levels. Also, analysts have recently downgraded them.
Albemarle Corporation (ALB)
ALB in Baton Rouge, La., is a developer, manufacturer, and marketer of highly-engineered specialty chemicals. The company operates in the lithium; bromine specialties; and catalysts segments. Goldman Sachs (GS) analyst Robert Koort recently downgraded the stock’s rating to ‘Sell’ from ‘Hold’.
On October 22, 2021, ALB announced its intention to make strategic investments in China to expand its lithium conversion capacity. However, it is uncertain if this will help boost the company’s revenue amid heightened U.S.-China tensions and increased scrutiny by Chinese authorities.
ALB’s net loss for its fiscal third quarter, ended September 30, 2021, came in at $392.80 million, versus a $98.30 million in net income in the year-ago period. The company’s EPS decreased 3.7% year-over-year to $1.05. And its net sales for the catalysts segment decreased 2.2% year-over-year to $193.60 million.
In terms of forward EV/S and P/S, ALB’s respective 9.14x and 8.45x are higher than the 1.78x and 1.5x industry averages. Moreover, its 59.63x forward non-GAAP P/E is 295% higher than the 15.10x industry average. Analysts expect ALB’s EPS for the quarter ending December 31, 2021, to decrease 16.2% year-over-year to $0.98. Over the past month, the stock has lost 15.2% in price to close yesterday’s trading session at $230.92.
ALB’s weak prospects are reflected in its POWR Ratings. It has an overall D rating, which equates to a Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
It has a D grade for Value. It is ranked #83 out 90 stocks in the Chemicals industry. Click here to see the additional POWR Ratings for ALB (Momentum, Growth, Stability, Sentiment, and Quality).
Livent Corporation (LTHM)
Philadelphia, Pa.-based LTHM manufactures lithium for use in a range of lithium products. It supplies high-performance lithium compounds for use in EVs and other batteries. Also, its products include battery-grade lithium hydroxide, non-battery hydroxide, butyllithium, high purity lithium metal, and other specialties. Goldman Sachs (GS) analyst Robert Koort recently downgraded the stock’s rating to ‘Sell’ from ‘Hold’.
For its fiscal third quarter ended September 30, 2021, LTHM’s selling, general, and administrative expenses increased 18% year-over-year to $11.80 million, while its total costs and expenses increased 16.3% year-over-year to $99.80 million. The company’s net loss came in at $12.60 million, up 20% year-over-year.
In terms of forward EV/S and P/S, LTHM’s respective 10.29x and 10.23x are higher than the 1.78x and 1.50x industry averages. Furthermore, its 6.34x forward P/B is 164.7% higher than the 2.40x industry average. The stock has declined 19% in price over the past month to close yesterday’s trading session at $24.11.
LTHM’s POWR Ratings reflect these bleak prospects. It has an overall D rating, which equates to a Sell. It has an F rating for Value and Sentiment and a D rating for Stability and Quality.
Within the D-rated Industrial – Metals industry, it is ranked #30 of the 35 stocks. To see the other ratings of LTHM for Growth and Momentum, click here.
ALB shares fell $3.86 (-1.67%) in premarket trading Friday. Year-to-date, ALB has gained 57.81%, versus a 25.98% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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