Lithium prices have plunged by more than 80% since hitting a recent peak in November 2022. But the bottom of this latest trough may have been reached as the pricing of the metal widely used for electric vehicle (EV) batteries is up by about 10% so far this year.
That price performance led one Wall Street analyst to upgrade shares of Albemarle(NYSE: ALB) from a hold rating to a buy rating this week. Bank of America Securities analyst Matthew DeYoe also boosted his share price target for the lithium miner to $156. DeYoe raised that from a previous target price of $137. The new target represents a gain of more than 21% over the next 12 months or so from its current price.
EV demand in focus when it comes to Albemarle's performance
DeYoe's positive view of Albemarle stock is based on the continued recovery of lithium prices. The huge decline over the last 18 months came as electric vehicle makers began slashing prices to boost sales. The drop from initially very strong demand has been seen globally.
It's not a stretch to tie Albemarle's share price to the pricing of the commodity either. Albemarle stock has dropped more than 50% since lithium prices peaked in November 2022.
Ultimately commodity pricing is based on the balance of supply and demand. The initial surge in demand for EVs led to higher demand for lithium batteries as well as a boost in mining and refining capacity. The decline in EV sales growth resulted in a lopsided supply/demand balance.
But EVs are still selling. Even if the pace of growth has slowed, the market is still there. The pendulum in lithium pricing may be swinging back the other way now. That's what could drive the more than 21% boost in the share price that DeYoe predicts. That's a sensible analysis of the supply and demand picture.
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Bank of America is an advertising partner of The Ascent, a Motley Fool company. Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America. The Motley Fool has a disclosure policy.
