Such a move could signal the start of a fundamental shift in the supply, which would exert pressure on the price of lithium. Catalysts are needed in oil refining and petrochemical production. The downgrade was followed the next day by mixed fourth-quarter 2017 earnings, which made some investors skittish. setTimeout(function(){ jQuery("#overlay_mask").removeClass("cl_show"); jQuery("#overlay_mask").addClass("cl_hide"); }, 3000); jQuery("#show_tweets").addClass("cl_hide"); Receive a weekly overview of published articles, videos and research reports straight to your inbox for boring long-term investing knowledge! ©Modern Value Investing with Sven Carlin. As electric vehicles require 5,000 to 10,000 times as much lithium as mobile phones, the growth prospects for lithium producers are certainly exciting. The general answer is "a lot," but the slightest delay in global battery factory ramp-up could ruin the party. More rain in Chile slowed down the evaporation process in Q1 and therefore production has been smaller with higher costs. }); Even better, electric vehicles are in the very early phases of their growth trajectory. Although the news from the company wasn't as exciting as Tesla investors may have been hoping, there was some important news for any company that mines for lithium. success: function(response) { Albemarle is headquartered in the U.S. but serves approximately 2,500 customers in about 100 countries. Sociedad Quimica y Minera de Chile (NYSE:SQM) and Albemarle (NYSE:ALB) are two of the largest lithium producers in the world. This pair of relatively large miners also produces more than just lithium, with the metal making up roughly 37% of Albemarle's sales and 20% of SQM's top line. For one, no one really knows how much lithium will be needed in the early 2020's. function scroll_by_id(id){ var chart_res = jQuery( "#show_chart" ).trigger( "click", [ "get_chart", "Event12" ] ); Only if ALB gets enough customers, it will develop its projects. On the one hand, a somewhat low price-to-earnings ratio can be justified by the high cyclicality of the stock and its vulnerability to recessions. Studies…, In theory, the maximum possible Social Security benefit in 2019 for someone who retires at full retirement age is $2,861, up 2.6% YoY. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Smaller players with more focused businesses present the potential for more upside, but if Tesla's lithium plans are any indication, the future could be cloudier than expected. Albemarle operates in three segments: lithium, bromine specialties and catalysts. Bromine is used in flame retardants for electronics. Also, commodity producers are great at ruining favorable market conditions with overexpansion. On a side note, the above chart perfectly describes the biggest benefit of value investing versus growth investing is. jQuery("#render_twitter_html").show(); RBC is recommending its clients sell stock in chemical company and lithium miner Albemarle. Disappointed growth investors often create the best buying opportunities. Albemarle business overview Lithium Albemarle investment thesis Lithium cost curve Current analysis of Albemarle + the growth story Albemarle – Bromine & Catalysts Investing risk Conclusion – expected investment returns I am researching the chemicals sector as there are many stocks with low PE ratios that look valuable at first sight. } chk_upto = last_count+10; //jQuery("#show_chart1").hide(); jQuery("#render_twitter_html").hide(); jQuery("#show_tweets1").addClass("active"); jQuery("#hide_tweets").removeClass("active"); However, we are -- and we will be dealing with the challenging market conditions for the next 12 months to 18 months. But it also treated shareholders pretty well by delivering total returns of 135% in the two years spanning 2016 to 2017. Therefore, it goes without saying that Albemarle won't be maxing out its quota anytime soon, but it's comforting to know it has the flexibility to expand if needed. They can handle some uncertainty and lean on other businesses if they need to adjust to changing market conditions. have attracted the interest of many investors lately thanks to the booming demand for lithium, which has resulted from the high growth in the number of mobile phones and electric vehicles. Albemarle is the industry leader in lithium and lithium derivatives, one of the highest growth markets in the specialty chemicals industry. Given that EVs are a new trend, we don’t know whether it will last or not. It gets ugly for those that have chased growth, of course. Perhaps a new technology will be better and therefore there might be less demand for lithium. Current analysis of Albemarle + the growth story. Now, SQM finds itself in a difficult situation, relying on the volatile spot-price markets to gauge lithium demand. When it comes to hot stocks, the excitement usually vanishes quickly and when that happens, one has to look at the fundamentals, estimate earnings with and without exuberance to see what is the investing risk and reward. Well, Albemarle won't have any problem increasing lithium production for the foreseeable future. The market capitalization is $7.7 billion and the net income is $695 million for a price to earnings ratio of 11. Well, it was accompanied by a bearish outlook report for the lithium market in general that essentially claimed producers are going to vastly overshoot market demand with production increases. The below is part […] It is a global specialty chemicals company, with leading positions in lithium, bromine and catalysts for refineries. If lithium prices go up, well you know the story. This is the biggest risk when it comes to ALB. Why would lithium be any different? Albemarle is a bright exception to this rule, as it has raised its dividend for 24 consecutive years. It scored a stock upgrade in January, but that was washed out by a stock downgrade at the end of February from analysts at Morgan Stanley. There could be also regulatory risks as countries, like Chile, decide on how much lithium can be exported. jQuery(document).on("click", "#show_tweets1", function(){ It trades... RBC is recommending its clients sell stock in chemical company and lithium miner Albemarle. Does the World Have Enough? That strongly hints this is an opportunity sitting in plain sight. jQuery("#hide_chart").show(); Let's conquer your financial goals together...faster. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. That includes new extraction methods that the automaker believes will reduce its lithium costs by as much as a third. The below is part of my list, I am looking at one by one, writing up short overviews, and at the end of the process, I’ll see what are the best businesses to watch over time and perhaps even buy when cheap. For the best experience, please update to a modern browser. jQuery("#hide_tweets").addClass("cl_show"); Electric car manufacturer Tesla held its "Battery Day" on Sept. 22. To order presentation-ready copies for distribution to your colleagues, clients or customers visit jQuery("#hide_tweets").addClass("active"); Growth will be driven by increased volume in the lithium business while the other two segments are expected to remain stable. More precisely, management expects additional earnings-per-share growth of 11%-19% this year, from $5.48 to $6.10-$6.50. To make matters worse, all but one of SQM's other businesses are struggling. }

Both companies harvest valuable lithium from the rich salt flats in Chile to be used for batteries in electric vehicles (EVs), conventional batteries, and some industrial products like greases, ceramic frits, and glasses. Lithium is what pushed the stock above $100 and then brought it back when lithium prices fell due to higher expected supply, cancellation of Chinese EV subsidies and other issues. jQuery("#hide_chart").removeClass("active"); }); Nevertheless, the decline of the stock price of Albemarle has probably extended too much. Alongside SQM, ALB has the lower production costs out there. Combining the buybacks and dividend gives a yield of 9%. There's no question that it was ugly for lithium miners today. There is a steady need for them and therefor the cash flows streams are also expected to be steady. The first is that the company is working on improvements that would reduce the amount of lithium needed to make a battery. Sociedad Quimica y Minera de Chile, commonly known as SQM, is a Chilean-based chemical company that gets 43% of its gross profit from lithium, 24% from specialty plants and nutrition, 22% from iodine and derivatives, 8% from potassium, and 3% from industrial chemicals, according to the company's November corporate presentation. Albemarle (ALB) has dramatically underperformed the market in the last three years. This report will focus on that. That’s…, Doesn’t the life of a freelancer sound amazing? As a result of increased supply and wavering lithium demand, especially after China cut government subsidies on electric vehicles, SQM is in a bind, delaying a planned expansion in its Atacama salt flat until 2021. At current margins, EBITDA should be $1.25 billion. We've detected you are on Internet Explorer.