Lithium is a critical component in manufacturing a wide range of products—from pesticides to cell batteries and industrial agents. Lithium-ion batteries are an integral part of electric cars (EVs), which are gaining popularity daily. So, the demand for lithium is projected to remain robust for the foreseeable future as nations worldwide invest heavily to replace fossil-fuel-powered cars with EVs.
According to reports, the global lithium market is expected to reach $8.2 million by 2028, registering a 14.8% CAGR. In addition, the price of lithium carbonate, a vital element in rechargeable batteries, has risen 276% in China since the beginning of the year to 197,500 yuan ($30,940) per ton, thanks to rising demand.
Albemarle Corporation (ALB) and Sociedad Quimica y Minera de Chile S.A. (SQM) use lithium as a raw component in their production processes. So, we think these fundamentally sound stocks could be solid picks to cash in on soaring lithium prices.
Albemarle Corporation (ALB)
ALB is a global developer, manufacturer, and marketer of tailored specialty chemicals. Lithium, Bromine Specialties, and Catalysts are its three operational segments. The Baton Rouge, La.-based company serves primarily the energy storage, petroleum refining, consumer electronics, construction, automotive, lubricants, medicines, crop protection, and custom chemical services industries.
Last month, ALB, a global leader in specialty chemicals, announced its intention to make significant investments in China to expand its lithium conversion capacity. With this, the company aims to design, engineer, and permit plans to construct a conversion plant with a targeted production capacity of 50,000 metric tons of lithium hydroxide per annum initially. Subject to additional studies and clearances, these facilities are anticipated to begin construction in 2022 and be completed by the end of 2024.
ALB’s net sales increased 11.2% year-over-year to $830.57 million in the third quarter, ended September 30, 2021. Its operating income came in at $131.52 million. The company reported $595.05 million in cash and cash equivalents for the nine months ended September 30, 2021.
ALB’s EPS is expected to grow 46.4% year-over-year to $4.01 in its fiscal year 2021. And analysts expect ALB’s revenue to increase 6.4% year-over-year to $3.33 billion in the current year. The stock has gained 91.2% in price over the past year and 76.2% so far this year.
Of the 17 Wall Street analysts that have provided ratings for the stock, 11 rated it Buy, and four rated it a Hold.
Sociedad Quimica y Minera de Chile S.A. (SQM)
Santiago, Chile-based SQM develops and manufactures a wide range of products for industries critical to human growth, including health, nutrition, renewable energy, and technology through innovation and technological development. The company primarily manufactures specialty plant nutrients, iodine compounds, lithium and its derivatives, potassium chloride, potassium sulfate, and industrial chemicals.
For the third quarter, ended September 30, 2021, SQM’s net sales increased 46.1% from the year-ago value to $661.55 million. Its profit from operating activities grew 543% year-over-year to $173.03 million. The company’s net income surged significantly from the prior-year quarter to $108.56 million, while its EPS came in at $0.3715 over this period.
The company’s EPS is expected to grow 163.5% year-over-year to $1.66 in the current year. In addition, its revenue is projected to increase 42.8% in the current year and 36.4% next year. SQM’s stock has gained 29.9% in price over the past year and 23.8% year-to-date.
Of the five Wall Street analysts who have provided SQM ratings, four rated it Buy, and one rated it Hold.
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ALB shares rose $2.65 (+1.02%) in premarket trading Thursday. Year-to-date, ALB has gained 79.10%, versus a 21.86% rise in the benchmark S&P 500 index during the same period.
About the Author: Pragya Pandey
Pragya is an equity research analyst and financial journalist with a passion for investing. In college she majored in finance and is currently pursuing the CFA program and is a Level II candidate. More...
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