Albemarle Jumps as Lithium Stock Buying Frenzy Takes Off

Key Points

• Albemarle stock might rally in the coming quarters, as its financial cycle suggests the worst could be over for the lithium industry.
• Wall Street analysts expect massive EPS growth ahead for Albemarle and double-digit upside based on price targets.
• Supply is set to tighten, and demand is on the rise, pushing the stock's profitability higher.

At any given time in the stock market, there are a couple of unknown and uncovered trends that could become one of the “I wish I bought” plays a few years later. Some people regret not buying into NVIDIA Co. NASDAQ: NVDA before it was NVIDIA; others wish they had bought Carvana Co. NYSE: CVNA before the stock rallied over ten times on a corporate restructuring.

Today, most people understand that the most popular alternatives to fossil fuel energy are now split between solar and electric vehicles (EVs). Knowing that most of the energy sector’s interest will be headed into these niches, and likely the billions of investment capital to create the necessary infrastructure, investors could dig deeper into the implications for solar and EV sources.

One relies on materials like polysilicon for chip and solar panel making. In contrast, EVs depended heavily on one commodity that has recently experienced a price crash. Lithium prices are down to 2021 levels, which spells the potential bottom of the profit cycle for lithium stocks like Albemarle Co. NYSE: ALB, as the company has gone on a recent 17% rally in a single week. Here’s why there’s so much interest in the company.

Albemarle's Profit Cycle Signals Massive Growth Potential Ahead

Investors need to realize that there are better ways to time a business's potential top and bottom than just the stock's price action. Albemarle's financials show just how much growth potential could be had in the coming quarters as the lithium market recovers.

Speaking to gross margins for Albemarle, pre-COVID levels showcased profitability of up to 36%, whereas today's gross margin stands at only 12.3%, showing a massive downswing and potential rebound in the future. Operating margins show the same trend, from 20.8% in 2018 to only 1.9% for 2023, another sign of a possible rebound ahead.

Knowing that this could be the potential bottom for Albemarle's business cycle, Wall Street analysts now forecast up to 353.6% earnings per share (EPS) growth for the next 12 months in the company. Leaning on these bullish factors stacking up for Albemarle stock, others on Wall Street made a bold prediction for the company's future.

Those at Evercore decided to place a price target of up to $170 a share for Albemarle stock as recently as late August 2024. The stock would need to rally by 93% from where it trades today to prove these analysts right.

Now that EV stocks like Tesla Inc. NASDAQ: TSLA and BYD OTCMKTS: BYDDF have recently shown a recovery in their sales and delivery cycles, the low levels of lithium production (due to low prices) might quickly shift to benefit margins at Albemarle and other lithium stocks on the new demand cycle.

China's deliveries and orders have increased by double-digits, indicating demand for Tesla EVs in the region. Based on these new trends, Albemarle stock has another trend to lean on and consider in the potential new bull cycle for the lithium industry.

Speaking of improving margins, China just announced that it will cut its monthly lithium production by 8%, a massive tailwind that could push lithium's price higher on tightening supply. As Albemarle is the world's largest lithium miner, this can spill over the company's financials and, therefore, its valuation.

Rising Bullish Signals Build Up for Albemarle Stock in the Market

As the bullish and optimistic evidence stacks up for Albemarle’s future, others in the market have no choice but to act on this new information. Investors can start by looking at the bearish side to determine whether interest is in taking this stock lower in the coming months.

Albemarle stock’s short interest declined by as much as 3.7% over the past month alone to show investors signs of bearish capitulation. More than that, up to $3.6 billion in institutional capital had made its way into the company over the past 12 months.

Primecap Management and ProShare Advisors are leading the institutional buying lately. These two Wall Street firms added 2.4% and 10.2% to their holdings in Albemarle stock as of August 2024, respectively. These new buyers brought their net investments up to $364.2 and $149.8 million, respectively, for 3.2% and 1.3% ownership in the company.

Even if the cycle takes a bit longer to arrive, investors can cushion any volatility that might hit the stock by enjoying a $1.62 per share payout or an annualized dividend yield of up to 1.8% today.