An electric cable runs along the lithium-ion battery of an all-electric Porsche AG Taycan luxury automobile
Krisztian Bocsi/Bloomberg
Shares of two lithium producers, Livent and Albemarle, caught Monday upgrades because it’s the end of the ICE age.
ICE is short for internal combustion engine. Barron’s can’t take credit for the “ICE Age” pun. It comes from Morgan Stanley auto analyst Adam Jonas. But likening the rise of electric vehicles, or EVs, to the end of an epoch feels apt. “For well over a century, we have relied on transportation networks nearly entirely driven by the combustion of fossil fuels,” wrote Jonas in a recent research report. He sees EVs taking over and thinks the current environment mush feel like it did back in 1910 when the Ford Motor (ticker: F) Model T shared roadways with horses.
More EVs, however, means more batteries, which all require lithium metal to work.
Expectations for rising lithium demand has created a boom in lithium stocks. Shares of miner Piedmont Lithium (PLL), Lithium Americas (LAC), Livent (LTHM), SQM (SQM) and Albemarle (ALB) have gained about 220% over the past year on average.
The smallest gain have been a 67% jump in the largest, more diversified Albemarle. Even that return crushes 8% and 16% comparable respective gains of the Dow Jones Industrial Average and S&P 500 over the same span.
The gains, however, aren’t scaring off analysts. Monday, Argus analyst Bill Selesky upgraded Livent stock to Buy from Hold. His price target is now $23 a share; he didn’t have a target price before Monday, according to FactSet. It’s a long-term call on the penetration electric vehicles. In the near term, Selesky expects lithium pricing to improve in the second half of 2021.
Livent stock is trading at about $19.44 a share.
Selesky also took his target price on Buy-rated Albemarle stock to $177 from $140. In addition to his price target bump, Albemarle shares were upgraded by Vertical Research Partners analyst Kevin McCarthy. His rating, however, only goes to Hold from Sell. McCarthy’s price target goes to $148 from $123, according to FactSet. Shares are trading for about $155.
That’s not a ringing endorsement, but its a recognition that things are getting better for lithium miners faster than the Street expected. “The future looks brighter to us,” wrote McCarthy in a Monday research report. But he continues to advocate a “nimble and opportunistic approach” to investing in the lithium miners. He wants a better entry point for Albemarle stock.
Overall, other analysts look as cautious as McCarthy. Only about 30% of analysts covering Albemarle rate shares at Buy. The average Buy-rating ratio for stocks in the Dow is about 57%. What’s more, the average analyst price target for Albemarle stock is about $146, lower than recent trading levels.
For Livent, only about 23% of covering analysts rate shares at Buy. The average analyst target price is about $19, a little below where shares are trading today.
It looks as if lithium-mining stocks have raced ahead of Wall Street expectations and analysts are still trying to figure out what to do next. Selesky, for his part, is bullish, while McCarthy is a little less bearish.
Lithium stocks are down despite the more bullish outlooks. Tesla (TSLA) is the reason. Tesla stock is down almost 5% as growth stocks are getting hit Monday due to rising fears of inflation. Higher bond yields tend to hurt faster-growing companies with higher price/earnings ratios than cheaper, slower-growing stocks.
The Nasdaq Composite, for instance, trades for about 34 times estimated 2021 earnings. It’s is down 1.5% in early trading Monday. The S&P trades for about 22 times earnings and is off about 0.5%.
Livent stock is off about 3%. Albemarle stock has fallen roughly 1%.
Write to Al Root at [email protected]
