Shares of Albemarle (NYSE:ALB), a global leader in specialty chemicals, plummeted 26% through the first half of 2018, according to data from S&P Global Market Intelligence. It failed to maintain the momentum that it experienced through 2017 -- a year in which shares climbed 49% -- suffering for two reasons: concerns regarding the global supply of lithium and a bearish outlook from the Street.
Although Albemarle deals in bromine and refining catalysts, it's lithium that plays the greatest role in powering the company's business. In 2017, for example, the company's lithium and advanced materials segment accounted for 43% of revenue.
It's no surprise, therefore, that when one of the company's greatest competitors roars, investors tremble. In January, Sociedad Quimica y Minera de Chile (NYSE:SQM) reported that it had resolved an ongoing dispute with the Chilean government regarding royalties. Pursuant to the agreement, that company now has the right to produce an extra 349,553 metric tons of lithium in addition to the approximately 64,816 metric tons remaining from a previously announced amount. Understandably, Albemarle's investors recoiled at the news. Should the price of lithium plummet with the increased supply, Albemarle's financials could be severely impacted.
Those on Wall Street also expressed concerns regarding Albemarle's prospects. In late February, for example, an analyst from Morgan Stanley downgraded the stock from equal weight to underweight, according to TheFly.com. The pessimism continued in March, when an analyst with Citigroup cut his price target from $148 to $112, while Chris Kapsch with Loop Capital reduced his price target to $130 from $150.
While investors' concerns regarding Chile's future increase in lithium production and the Street's bearish perspective are warranted, they appear to be fairly shortsighted. Wall Street often has a shorter time horizon in mind than the multiyear perspective we assume. Moreover, lithium production is hardly a zero-sum game, and Albemarle, an industry leader among lithium producers, still represents one of the more compelling opportunities for investors seeking to gain exposure to the metal.