Why Albemarle Corporation (NYSE:ALB) Stock Is A Buy

- April 12, 2017

Albemarle Corporation (NYSE:ALB) Stock is a Buy for several reasons I will lay out. They are the global leader in lithium production, currently  producing around 65,000 tons per annum of lithium carbonate equivalent (LCE). That production volume represents about 30% of the lithium supply globally! That makes Albemarle (NYSE:ALB) the Lithium King. The price of Albemarle Stock has rose 23.07% YTD and 63.36% over the last year! With the price of Lithium still on the rise, I remain bullish on ALB Stock

About Albemarle Corporation (NYSE:ALB)

Albemarle Corporation (NYSE:ALB) is headquarted in Charlotte, NC. The company produces specialty and fine chemicals such as lithium (currently 17.7% of their revenues and 27% of net income), bromine, and refining solutions.

Albemarle 2016 financial highlights and net sales by segment;

 

The main reasons I like Albemarle (NYSE:ALB) stock are as follows:

.  Number 1 global lithium producer.

·   Number 1 world class lithium mines such as Atacama with SQM (NYSE:SQM) in Argentina.  Greenbushes mine with Tianqi Lithium (SHE:002466) in Western Australia with huge lithium reserves and the world’s highest lithium grades. Moreover,  it has the lowest cost of production mines for lithium brine and spodumene.

·   Plans to expand Atacama with SQM with their La Negra plant currently ramping up to increase capacity by 20ktpa. They have Government approval to increase Atacama production up to 80ktpa.

·   Plans to double lithium concentrate production at Greenbushes facility from 80ktpa LCE to 160ktpa.  This is expected  “early in the next  decade” with commissioning starting in Q2, 2019. Albemarle share is half of this of this project.                                               

 ·   Expect them to achieve stronger lithium pricing contracts going  forward as they have lagged their peer (NYSE:SQM) in  pricing until now.                                                                                     

·   They have the only producing lithium mine in America,  albeit a small lower grade production mine.  Located near Silver Peak in Clayton Valley Nevada (not too far from the Tesla (NASDAQ:TSLA) gigafactory.

·   Several other lithium projects (Chile and Argentina) in Greenfield stage.

Chile’s  Salar de Atacama Lithuim is a widespread salt flat with high concentrations of lithium owned by SQM.

 

Source (Link to Mine)

Valuation;

As expected Albemarle trades on a fairly high valuation with a 2017 PE of 25.4, and a 2018 PE of 21.7.  However, given they should achieve strong lithium production and price increases in the next year or two, their valuation is quite reasonable.  Net profit margin is forecast at 16.4% in 2017, and forecast to improve in future years.  Analyst median 1 year price target is US$110, which I would expect to be upgraded once their lithium production or contract prices increase.

Risks to the above include weakness in lithium or bromine prices, production ramp difficulties, and the usual stock market risks.

Conclusion.

Albemarle (NYSE:ALB) is a high quality large market cap diversified chemicals play, with a strong focus on lithium.  I would rate the stock an accumulate, and buy on weakness. As long as the EV and energy storage boom continue to do well,  Albemarle will be a prime beneficiary.

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