By Matt McCallSep 22, 2017
We last spoke about my pick in InvestorPlace.com’s Best Stocks for 2017 contest at the midpoint of the year, and at that time it had racked up a spectacular 23% gain. It’s been less than three months since, and over that period our return on Albemarle Corporation (ALB) has more than doubled to nearly 60%.
Before we dive into things, let me give you a quick reminder of what this company does. Albemarle is a global specialty chemicals company that is a leader in lithium, bromine, refining catalysts and applied surface treatments. It’s one of three major global players in the lithium sector and owns lithium brine operations in Chile and the United States, as well as a stake in a mine in Australia.
In simpler terms, ALB is a play on the huge NexGen lithium theme, which those of you who invest with me know is one of my favorite sectors for long-term growth. The industry as a whole has put together a very strong third quarter. It’s a tide that lifts all boats, but before you jump to the conclusion that ALB’s strength can be attributed to broader trends, let me first say that Albemarle is actually one of the stocks leading the movement.
Several stories over the last three months can be considered catalysts that helped ramp up the lithium sector’s (and ALB’s) momentum. The biggest was news that China will soon set a date for the conversion of its massive production of cars to electric vehicles (EVs). Remember, EVs use lithium batteries, so increased demand for those products will lead to more revenue for lithium suppliers like ALB.
Individual car companies have also come out this quarter with plans to move their fleets of cars to EVs in the next 10-15 years. If current research is accurate regarding the number of EVs on the road in the next decade, we should see a huge supply crunch for lithium. And any related business will only boom.
Looking at Albemarle specifically, the company recently announced a new technology that will allow it to greatly increase its lithium carbonate equivalent (LCE) production in the coming years without the need for additional brine pumping. In simpler terms, that means every additional metric ton of LCE produced will result in a bigger bottom line and higher stock price. And on top of all that, we’ve also received news that ALB management remains positive regarding the expansion in its Chile mine.
Add that all up and we’re left with a strong fundamental outlook around Albemarle.
ALB’s chart only adds to the strong picture here. The stock continues to hit all-time highs, and had put together a nine-day winning streak prior to pulling back a bit on Thursday. There’s no question the chart is overdue for a breather given the strength it has experienced in recent months, but at this point any pullback can be considered a great opportunity to add to this longer-term investment.
Despite ALB’s near 60% run so far in 2017, there is still big upside left based on the NexGen lithium trend that continues full speed ahead. There will be increased volatility as the sector becomes more mainstream, but with our sights set firmly on the future, our best strategy is to ride out the waves and add to our positions on weakness.
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