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A rechargeable Lithium-ion battery
Ronny Hartmann/AFP via Getty Images
Investors are convinced electric vehicles are the future of personal and commercial transportation. That belief is impacting sectors outside of the car business as much as it is affecting car stocks.
Lithium mining is one of those sectors. EVs need lithium for lithium-ion batteries that make the cars go. Two stocks are on the move Friday, adding to recent gains, after a new bullish take from Citigroup.
Analyst P.J. Juvekar upgraded
SQM
(ticker: SQM) and
Albemarle
(ALB) stock to Buy from Hold. His price target for SQM stock goes to $62 from $55. Juvekar’s price target for Albemarle stock goes to $184 from $176.
“We are turning more bullish on lithium due to: EV momentum in China and Europe, the dissipation of excess lithium inventory, and announcements by OEMs like GM to go all-electric by 2035,” writes the analyst in a Friday research report.
OEM is short for original equipment manufacturer and is automotive jargon for car makers such as
General Motors (GM).
Expectations for EV penetration of the global automotive market is rising. Regulatory credits make buying an EV in Europe and China very attractive. What’s more, EV costs are approaching traditional car prices as battery costs fall. The EV wave should come to American shores too. “The U.S. has lagged in EV sales, but the Biden presidency bodes well for the future of EVs in the country,” adds Juvekar.
It sounds like a bullish set up, but Juvekar is in the minority with his upbeat call on lithium-mining stocks. Only about 30% of analysts covering SQM or Albemarle stock rate shares at Buy. The average Buy-rating ratio for stocks in the
Dow Jones Industrial Average
is about 57%. What’s more, the average analyst price targets are roughly 10% below where both stocks are trading.
Analysts are having trouble keeping up. Albemarle stock is up about 75% over the past six months, while SQM stock has gained about 67%. Analysts in many sectors, not just the car business, appear to be struggling to adapt to the rapidly rising expectations for EV penetration.
Wedbush analyst Dan Ives is bullish on the EV sector. He believes EV penetration of global new car sales could his 10% by 2025. But based on public comments from auto makers, that number could be 15% to 20% of new car sales. That’s if all the car companies hit their EV-volume goals.
More EVs is good for lithium miners but the stocks are expensive relative to their own trading history. SQM trades for about 48 times estimated 2021 earnings, higher than its five year PE average of roughly 27 times earnings. Albemarle trades for about 39 times estimated 2021 earnings, higher than its average five-year price/earnings ratio of roughly 21 times.
Barron’s has a bullish view of lithium. We tend to side with Juvekar, recently writing positively about another lithium miner
Livent
(LTHM). Shares are up about 60% since the article appeared in November, easily beating comparable returns of the S&P 500. Livent’s rise happened faster than expected.
Livent stock, for its part, is in the same analyst situation as the other two miners, only a little worse. About 20% of analysts rate the shares at Buy and the average analyst price target is about 16% below where shares are trading.
Albemarle and SQM stocks are rising on the new bullish take. Both shares are up about 2% in premarket trading.
S&P 500
futures, for comparison, are down about 0.2%.
Write to Al Root at [email protected]
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