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Here's Why Albemarle Gained 24.6% in May

By Maxx Chatsko – Jun 9, 2020 at 6:32PM

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The world's leading lithium producer benefitted from rising confidence about the pace of a possible economic recovery.

What happened

Shares of Albemarle (ALB 3.03%) jumped over 24% last month, according to data provided by S&P Global Market Intelligence. The lithium stock rebounded from a lousy April as investors grew more confident in the pace of the post-pandemic economic recovery and the company's plans to navigate the new market uncertainty.

The specialty chemicals leader reported its first-quarter 2020 operating results in May. While management was careful to prepare investors for pain in the second half of the year, the business also outlined steps it will take to conserve cash and reduce spending. 

Investor enthusiasm has remained high through the first week of June. The dividend stock is now trading above where it began 2020 and is close to its 12-month high.

A hand pulling the last and tallest bar in a bar chart above the rest.

Image source: Getty Images.

So what

Albemarle was expecting its financial performance in 2020 to lag behind that from 2019 well before the coronavirus pandemic struck. The abrupt changes in consumption caused by the health crisis could have a significant negative impact on the business, which generates two-thirds of its revenue from catalysts used in oil refineries and lithium used primarily in electric transportation markets. 

In the first quarter of 2020, the specialty chemicals leader reported an 11% decline in total revenue compared to the year-ago period. That was actually better than the company's initial guidance, reflecting pre-pandemic projections for declining lithium prices. 

While the year-over-year comparisons are expected to worsen in the second half of the year, management committed to maintaining ample liquidity, realizing $50 million to $70 million in cost savings in 2020, reducing full-year capital spending by up to $150 million, and preserving the dividend.

Now what

Investors were already expecting 2020 to be a transition year for Albemarle, but the consumption-sapping effects of the coronavirus pandemic have added to the pain for the business and shareholders. Those with a long-term view might not be overly concerned, especially given the increasingly important role of lithium in energy markets. Nonetheless, investors can expect this dividend stock to remain volatile throughout 2020.

Maxx Chatsko 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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Albemarle Corporation Stock Quote
Albemarle Corporation
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