Insights

Why Shares of Top Lithium Supplier Albemarle Fell 13% in April

What happened
Shares of top lithium and base materials producer Albemarle (NYSE: ALB) fell 12.8% last month, according to data provided by S&P Global Market Intelligence. For comparison, the S&P 500 fell 8.8% during the month as stocks retreated due to fears of inflation and the Federal Reserve’s coming interest rate hikes.
Image source: Getty Images.

So what
Albemarle is a top producer of lithium and other base materials used in lithium-ion batteries and other electronics. Lithium prices have been soaring in recent years as the global automotive industry makes the switch to electric vehicles. Batteries are, of course, already commonplace in a myriad of other tech devices, but are also being applied in new areas like the energy grid to help manage renewable energy projects and make the overall distribution of power more efficient.  
As a result, Albemarle and its peers have been soaring. At one point last year, the stock had nearly doubled in price in 2021 alone. Albemarle was thus due for a cool-off. Even after the recent slump, the stock trades for about 19 times expected full-year 2022 adjusted EBITDA and 32 times expected 2022 earnings per share.
Now what
This is no cheap stock, but Albemarle is still worth a serious look anyway. It is poised to benefit in the coming years as electric vehicles, renewable energy projects, and other tech device demand grows. Besides a big expected jump in lithium sales and profitability this year, Albemarle outlined its plans back in March for global expansion through 2025. It’s boosting its production at sites in Chile and Australia, and later on will be developing projects in China as well.
What does this have to do with the market’s fears on inflation and interest rates? Developing mines costs a lot of money, so higher rates mean Albemarle might be investing at slightly less favorable terms than in the past couple of years when the Fed had pegged short-term borrowing costs at close to zero. Nevertheless, Albemarle has a very long history of developing profitable projects. It’s averaged an operating profit margin in the mid-teens percentages over the last decade.  
For the value-oriented investor, Albemarle may be on the wrong side of expensive at the moment. However, the company looks like it will enjoy at least a few years of rapid growth in revenue and profitability. If you are looking for a long-term bet on battery technology via lithium stocks, Albemarle deserves to be at the top of the list of stocks to consider. Look for an update on first-quarter 2022 earnings results on May 5.
Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. –

What happened

Shares of top lithium and base materials producer Albemarle (NYSE: ALB) fell 12.8% last month, according to data provided by S&P Global Market Intelligence. For comparison, the S&P 500 fell 8.8% during the month as stocks retreated due to fears of inflation and the Federal Reserve’s coming interest rate hikes.

Image source: Getty Images.

So what

Albemarle is a top producer of lithium and other base materials used in lithium-ion batteries and other electronics. Lithium prices have been soaring in recent years as the global automotive industry makes the switch to electric vehicles. Batteries are, of course, already commonplace in a myriad of other tech devices, but are also being applied in new areas like the energy grid to help manage renewable energy projects and make the overall distribution of power more efficient.  

As a result, Albemarle and its peers have been soaring. At one point last year, the stock had nearly doubled in price in 2021 alone. Albemarle was thus due for a cool-off. Even after the recent slump, the stock trades for about 19 times expected full-year 2022 adjusted EBITDA and 32 times expected 2022 earnings per share.

Now what

This is no cheap stock, but Albemarle is still worth a serious look anyway. It is poised to benefit in the coming years as electric vehicles, renewable energy projects, and other tech device demand grows. Besides a big expected jump in lithium sales and profitability this year, Albemarle outlined its plans back in March for global expansion through 2025. It’s boosting its production at sites in Chile and Australia, and later on will be developing projects in China as well.

What does this have to do with the market’s fears on inflation and interest rates? Developing mines costs a lot of money, so higher rates mean Albemarle might be investing at slightly less favorable terms than in the past couple of years when the Fed had pegged short-term borrowing costs at close to zero. Nevertheless, Albemarle has a very long history of developing profitable projects. It’s averaged an operating profit margin in the mid-teens percentages over the last decade.  

For the value-oriented investor, Albemarle may be on the wrong side of expensive at the moment. However, the company looks like it will enjoy at least a few years of rapid growth in revenue and profitability. If you are looking for a long-term bet on battery technology via lithium stocks, Albemarle deserves to be at the top of the list of stocks to consider. Look for an update on first-quarter 2022 earnings results on May 5.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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