Bear of the Day: Albemarle Corporation (ALB)

Albemarle Corporation ALB, the world’s largest lithium producer, has suffered as lithium prices have tanked ~80% from their late 2022 highs.

Slowing electric vehicle sales, increased lithium supply, and other headwinds are weighing on Albemarle stock. The company’s earnings revision fell after it provided disappointing guidance when it released its Q2 results in early August.

Albemarle’s downward earnings revisions earn the stock a Zacks Rank #5 (Strong Sell).

Should Investors Stay Away from Albemarle Stock Right Now?

ALB is a Charlotte, North Carolina-based specialty chemicals company with leading positions in attractive end markets around the world. Its portfolio serves customers across an array of areas including petroleum refining, consumer electronics, energy storage, construction, and automotive.

Albemarle is growing its position in the lithium industry, which offers the firm upside across electric vehicle batteries, energy storage systems, and more.

Lithium-ion batteries have been used in electronics such as smartphones for a long time. EV batteries are many orders of magnitude larger than an iPhone battery, often stretching from the front wheels to the back.

Lithium will play a role in the future of technology, energy, and transportation. Albemarle is poised to capitalize on that expansion over the long haul.

Unfortunately for ALB, the broader lithium mining industry is facing some serious near-term hurdles that are proving difficult to overcome. Lithium prices and lithium stocks, including Albemarle, skyrocketed on the back of massive Covid-era EV growth projections (sparked, in part, by U.S. government efforts that are no longer in place).

EV growth has cooled off substantially in the U.S. and beyond, even in the critical Chinese market. ALB and the entire lithium industry were priced for and prepared for massive EV industry growth that has not materialized yet.

ALB’s earnings outlook dropped 13% for Q3 and 36% for the fourth quarter since its Q2 release. Its recent downward EPS revisions land the stock a Zacks Rank #5 (Strong Sell).

Albemarle stock is down 55% in the past five years while the S&P 500 surged 85%. And its Chemical–Diversified indsutry is in the bottom 17% of 247 Zacks industries.

Longer-term structural demand from EVs and energy storage remains positive, but the near-term price environment reflects the imbalance sparked in the post-Covid lithium and EV craze.

On top of that, Albemarle operates across highly cyclical areas of the economy, and its stock price performance over the last 20 years reflects that volatility.

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This article originally published on Zacks Investment Research (zacks.com).

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