Wall Street has high hopes for lithium miners, including S&P 500 component Albemarle (NYSE: ALB)which reports its third quarter after the bell on November 2nd.
The stock is up 19.86% in the past three months and 16.01% year-to-date. It also rose a whopping 13.70% in the past week. That recent rally followed the broader market, although Albemarle broadly outperformed its index as the S&P 500 rose 4.66% this week.
Other US-listed lithium stocks, including: Sociedad Quimica y Minera de Chile (NYSE: SQM), Piedmont Lithium Limited (NASDAQ:PLL), Livent Corporation (NYSE: LTHM) and Lithium Americas Corporation (NYSE: LAC) also outperformed the broader market last week.
Those moves even came as Tesla (NASDAQ: TSLA) missed revenue expectations for the third quarter. Nevertheless, the stock rose 4.61% last week, just below the index.
Even with more bad news from Tesla, including a price drop for cars in China as demand declines, the future looks bright for EVs and companies involved in the lithium industry.
Analysts predict a strong market for lithium in the next 8 years. For example, global consultancy McKinsey says lithium demand will rise from about 500,000 tons of lithium carbonate equivalent (LCE) in 2021 to between three million and four million tons in 2030.
It is quite clear that lithium producers and battery manufacturers, such as Norway’s Freyr Battery (NYSE: FREY), are well positioned for big gains in the future. But there are more immediate reasons for optimism.
A development that fueled Albemarle’s advances last week: The Charlotte-based company is the beneficiary of a grant from the U.S. Department of Energy to increase lithium-processing capabilities.
The grant is part of a broader program, in which the DOE awarded a total of $2.8 billion to develop lithium processing facilities in 12 states. Albemarle received $150 million as one of the first projects funded by the infrastructure law.
In a releaseAlbemarle says it will use the grant “to expand domestic production of batteries for electric vehicles (EVs) and the grid, and for materials and components currently imported from other countries.”
Albemarle plans to build a new commercial-scale lithium concentrator facility in Kings Mountain, North Carolina.
In the press release, the company’s CEO, Kent Masters, noted that Albemarle is one of the few companies “currently producing battery-grade lithium from US sources.”
The company previously announced a new lithium conversion facility, for which it is yet to select a location. According to the company, this new facility is “expected to eventually produce up to 100,000 tons of battery-grade lithium per year to support domestic production of up to 1.6 million EVs per year.”
When Albemarle reports next week, analysts expect earnings of $6.84 a share on revenue of $2.12 billion. That would be an increase of over 550% and 155% respectively. For the full year, Wall Street sees Albemarle earn $21.14 a share, an annualized gain of 423%.
Albermarle’s chart shows a consolidation that began in mid-September after the stock pulled back from a high of $308.24. On October 13, as the broader market made a stunning upward reversal, Albemarle found support near the 200-day moving average. While the stock still ended the week ending October 14 with a loss, that rally started last week’s uptrend.
Still, Albemarle remains below the 50-day moving average, although that line is moving higher, which is a lagging indicator of a stock’s momentum. Albemarle is trading above short-term lines, including the 10-day and 21-day averages.
As the company is due to report profits next week, investors should be cautious. Even a slightly reduced guidance or an unexpected miss can send a stock lower. Choosing to wait until after earnings, even if it shoots higher on a better-than-expected report, can result in a profitable trade in the medium term. A large price increase after earnings is generally a signal that institutional investors are convinced of a stock and are entering at what they believe will ultimately prove to be a reasonable valuation.