With 2012 just beginning, now's a smart time to gauge how the stocks you're interested in are likely to do this year and beyond. By knowing what stock analysts and fellow investors expect from a stock, you'll be smarter about whether you should buy it for your portfolio -- or sell it if you already own it.
Today, let's take a look at the lithium industry. With its potential for use in batteries for everything from mobile devices to electric cars, lithium plays an increasingly important role in the global economy. But higher demand often means rising prices for commodities, creating a potential opportunity to invest in the companies that produce lithium. Below, I'll take a closer look at what people expect from the industry in 2012, as well as some ways to play the trend.
Forecasts on lithium stocks
Target Price, Sociedad Quimica y Minera (NYSE: SQM ) : $64, 16% above current price
Target Price, FMC: $104, 15% above current price
Target Price, A123 Systems (Nasdaq: AONE ) : $4, 72% above current price
Target Price, Exide Technologies (Nasdaq: XIDE ) : $5, 57% above current price
How will lithium do this year?
2011 wasn't a terribly strong year for lithium-related stocks. The Global X Lithium ETF (NYSE: LIT ) fell 37% as fears of a global economic slowdown weighed on the industry. But this year, analysts expect lithium prices to jump 20%.
Obviously, the biggest winners from higher lithium prices are the companies that produce it. Sociedad Quimica y Minera is the world's largest lithium producer, with huge reserves in Chile. With growth in sales and volume of around 25%, any price increase should fall straight to the company's bottom line. Chemical companies FMC and Rockwood Holdings (NYSE: ROC ) should also benefit from strength in lithium prices. Increasingly, the companies are boosting their investment in the sector to take advantage of the profit opportunity there.
On the applied side of the business, battery-makers Exide and A123 have had their stocks lose a lot of ground in the past year. Higher lithium prices can actually hurt the battery-makers that use lithium as a raw material unless they can pass through those higher costs to their buyers. In addition, controversy over a rival's batteries apparently causing fires at high-impact speeds in electric vehicles raises questions for the battery industry's potential for automobiles.
Despite those worries, though, the need for power storage should give a big tailwind to the lithium industry in 2012. With individual companies having their own issues, buying the lithium ETF may give you the best-diversified play on the space that you can get right now.
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