Dump Lithium Stocks Now, Says Goldman Sachs

Dump Lithium Stocks Now, Says Goldman Sachs

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Tuesday evening, Goldman Sachs analyst Robert Koort downgraded shares of lithium miners Albemarle and Livent to Sell from Hold.
Cristobal Olivares/Bloomberg

Lithium stocks have had a great run as commodity pricing has risen and investors think about an all-electric-vehicle future. The stocks, however, have gone too far for one Wall Street analyst, who recommend selling shares.

Tuesday evening, Goldman Sachs analyst Robert Koort downgraded Albemarle (ticker: ALB) and Livent (LTHM) shares to Sell from Hold.

His price target for both stocks actually went up, however. His Albemarle price target was raised to $205 from $199. His Livent target price was raised to $23 from $22 a share.

But both stocks are trading well above his price targets. Albemarle stock is at $228 in Wednesday morning trading, down about 6.5% after the downgrade, while Livent stock is at $23.50, down about 7.4%. The S&P 500 and Dow Jones Industrial Average are both flat ahead of the Federal Reserve rate decision.

When a target price is below where stocks are trading, valuation is typically something troubling the analyst. “The lithium market is quite different from the chemical markets we have analyzed throughout our careers,” wrote Koort in his downgrade report. Lithium has a lot going for it as a key part of the batteries that power electric vehicles, and EV growth is implies tenfold growth in lithium demand over coming decades. Many new lithium mines will be needed to meet all that demand. It isn’t easy to pick a long-term price for lithium to model stock with in that scenario.

“We believe that the current valuations of lithium stocks seem to be too high,” added Koort. Albemarle trades for about 27 times Koort’s estimated 2022 Ebitda, short for earnings before interest, taxes, deprecation, and amortization. Livent trades at about 15 times that amount. The rest of his chemical coverage trades at an average of about 8 times his estimated 2022 Ebitda.

Koort also says positive news flow the lithium sector isn’t likely to abate. More EVs are coming to global markets. Still, “our call is based on an assertion that the lithium industry is inherently cyclical and subject to the dynamics of a cyclical investing framework.”

Koort’s downgrade to Sell doesn’t impact Buy-rating ratios of either stock. About 52% of analysts covering Albemarle rate the stock at Buy. The average Buy-rating ratio for stocks in the S&P 500 is about 55%. The average analyst price target for Albemarle is $267, much higher than Koort’s.

The average price target for Livent stock is about $30, and about 42% of analysts who covering it have Buy ratings.

Coming into Wednesday trading, Albemarle stock was up about 65% year to date, while Livent stock is up about 35%. Both stocks hit their 52-week highs in late November.

Write to Al Root at allen.root@dowjones.com

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