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Why Albemarle Stock Jumped 13% in February

By Reuben Gregg Brewer – Updated Apr 10, 2019 at 2:51PM

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Almost all of Albemarle's big gain came in the last few days of the month.

What happened

Shares of Albemarle (ALB -0.63%) rose 13% in February, according to data provided by S&P Global Market Intelligence. That big gain came in the wake of the specialty chemicals company reporting its earnings on Feb. 20.

So what

Each of Albemarle's three divisions put up decent numbers in 2018. For the year, the company's overall sales were up 13%, adjusted EBITDA jumped 17%, and adjusted earnings increased by 23%. The bromine business (bromine is a fire retardant used in electronics) saw sales grow 7% and adjusted EBITDA increase 11%. Catalysts, used largely in the energy industry, posted 11% increases in sales and adjusted EBITDA. The lithium group was the big winner, with 21% sales growth and a 19% jump in adjusted EBITDA. Lithium, while only about a third of the company's revenue, is the big story at Albemarle.   

Two people looking at a computer screen with a stock graph on it

Image source: Getty Images.

Lithium is a key material used to make batteries. Demand for lithium is projected to explode along with demand for electric vehicles, an area which every major automaker has begun to focus on. Lithium, however, is a commodity, so its price is subject to swings. Investors were hot on the metal in 2017, but cooled on it last year, sending the price lower. Albemarle's stock followed along for the ride on both the upside and downside. However, despite relatively weak lithium prices, Albemarle was able to show that its long-term goal of increasing lithium production over time is paying off: Increased production was able to more than offset lithium price headwinds.

Most exciting, however, is the fact that Albemarle gave an upbeat outlook for 2019. The company is projecting sales growth for the year to be as high as 15%, adjusted EBITDA growth of as much as 14%, and up to 20% earnings growth. This performance will largely be driven by Albemarle's investments in the lithium business. 

Check out the latest earnings call transcript for Albemarle.

Now what

Thought increasingly focused on lithium, Albemarle is putting up solid numbers despite concerns about the commodity's price swings. In other words, the company's long-term story still looks to be intact. However, with the growing role that lithium plays in Albemarle's future, investors should expect share price volatility to continue on any news related to that division, as we saw in February. If that's not something you can handle, then you shouldn't own this increasingly lithium-linked stock. That said, if you think long-term and believe that lithium has a bright future, then Albemarle could be a very enticing investment option.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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